Late on crypto? Institutions still at early stage of Bitcoin adoption

Institutional investors are rushing to Bitcoin (BTC) at high speed, and more and more companies are emerging looking to use Bitcoin as a means of storing their reserves. Recently, Marathon Patent Group, a Nevada-based bitcoin mining company, bought $ 150 million worth of bitcoin in reserve. This is similar to MicroStrategy, which bought Bitcoin worth $ 425 million in September 2020. This purchase made the Marathon Patent Group the third company. largest holder of BTC among listed companies

In addition to Marathon, BlackRock, the world’s largest asset manager by virtue of assets under management, has stated in its new filing with the U.S. Securities and Exchange Commission that bitcoin derivatives could now be part of the investment plan of two of its affiliated funds, BlackRock Global Allocation Fund Inc. and BlackRock Funds. This is a precedent for other large asset management companies like Vanguard, UBS Group, State Street Advisors, etc. looking to get into the crypto investing space.

Public companies now hold over $ 3.6 billion worth of Bitcoin, up 400% over the past 12 months, according to research by technology researcher Kevin Rooke. In 2019, these companies barely had 20,000 BTC in their portfolios, a number that has since grown to 105,837 BTC. The largest owners were MicroStrategy, Galaxy Digital and Marathon Patent Group. Institutes are now getting involved in the Bitcoin market as some expect Bitcoin to become a digital alternative to gold.

The 2020 BTC bull run brings FOMO to institutional investors

The price of Bitcoin has soared from around $ 7,250 at the beginning of 2020 to its all-time high of $ 41,940 on January 9 of this year. That jump resulted in investors seeing a 303% return on their Bitcoin investment in 2020. These returns significantly outperformed the returns from market indicators such as the S&P 500, Nasdaq Composite Index and Gold.

Those unusually high returns on Bitcoin have left institutional investors afraid of missing out, especially as several well-known traditional financial firms have warned that Bitcoin could hit $ 100,000 later this year. Scott Freeman, co-founder and partner of JST Capital – a company specializing in digital assets for institutional investors – told Cointelegraph that “BTC is widely recognized as an asset in its own right,” adding, “Funds that have missed growth in 2020, they will be pushed by their investors to get involved in this asset. “

In addition to the high returns Bitcoin and other cryptocurrencies have offered through 2020 and through 2021, institutional investors are looking to use Bitcoin to hedge risks from other assets in their portfolios that have a low correlation to the cryptocurrency markets.

Sergey Zhdanov, Chief Operating Officer and Chief Financial Officer of EXMO – a UK-based crypto exchange – told Cointelegraph that “cryptocurrencies have greater practical value compared to gold”. He further noted that this “confirms the fact that cryptocurrencies have the ability to develop their applied properties (means of payment and means of circulation), not just their investment characteristics”.

An example of institutions using Bitcoin as a hedge for their portfolios is the announcement by the Ruffer Investment Company to its investors that it now holds 2.5% of its portfolio in BTC. “We see this as a small but strong insurance policy against the ongoing devaluation of the world’s major currencies. “

Still early adopters or latecomers?

Given that many institutions are now buying Bitcoin and other cryptocurrency assets, one could argue that these investors are a little late for the party and buy assets at a higher price than if they had taken over the crypto empire just a year ago . Simon Peters, market analyst at eToro – a social trading and multi-asset brokerage company – told Cointelegraph:

“The institutions that buy Bitcoin now and hold it as a reserve strategy can still be viewed as early adopters in the corporate sense. In the months and years to come, investors will look back on the beginning of 2021 as an auspicious moment to look into crypto. Early adopters open the playing field to others. “

Buying and holding Bitcoin as a reserve currency for their portfolios to complement traditional assets is just the first step towards broad exposure. Once these institutions become familiar with digital assets, they will look into other uses, such as payment, remittance and settlement purposes, Peters said. He added, “We can even see central banks holding Bitcoin as it grows in status to become a digital reserve currency. “

Earlier this month, eToro released its Institutional Cryptoasset Trading report, which shows that one of the biggest obstacles to institutional adoption of crypto is insufficient market capitalization. Now that market cap has passed $ 1 trillion, traditional players are expected to accelerate growth to $ 2 trillion in the near future. Peters went on to explain how the new in-depth administration in the US will respond to crypto:

“In the world of regulation, the new US administration – including the arrival of a new Treasury Secretary, Head of OCC, SEC Chairman and CFTC Chairman – could dramatically affect the development of the crypto market and its interconnection with traditional markets.”

Is the market still responding to institutional buying?

The market is currently driving institutional investors to join the market as they are pushed by their clients who want exposure to this fast growing asset class. However, these investors who are buying into Bitcoin have no real influence on the price development of the market in the current scenario as this is expected of them as a lag indicator for these markets. It is therefore questionable whether these investments are actually driving the market.

However, Zhdanov expects these investments will fuel the market in the long run, as large investors tend to hold onto their positions. In addition, the number of BTC addresses newly created every day has not yet reached the 2017 level, suggesting that the current growth is organic in nature. Freeman added that the entry of these actors could benefit the volatility of these assets: “These investors tend to have longer investment horizons and offset the short-term volatility typically caused by short-term retail investors.”

It is important to remember that the BTC market is still more speculative than one that follows the rules of traditional trading based on fundamentals and technical analysis. The most recent example of this is Elon Musk, who added #Bitcoin to his bio with a related tweet that said, “Looking back, it was inevitable.”

Connected: Institutional demand for crypto is not easing, but the effects will be gradual

Bitcoin price responded with a spike later known as the “Elon Candle” that rose 13.9% over the next 30 minutes. That alone is proof of how speculative the market is right now. Regardless of these short-term price movements, however, more institutional investors are expected to flock to the crypto markets for lucrative profits, hedging opportunities, and exposure to diversified portfolios, albeit at a slower pace than many would like to believe.