Institutional investors are flooding into Bitcoin in droves. It seems that they can't get enough of this cryptocurrency — and some hedge funds are actually buying up these digital assets faster than they can be mined.
Here, we're going to look at where this institutional interest is coming from, exactly who is buying Bitcoin in bulk and examine why they're so fascinated with this asset class.
Do Institutional Investors Know About Crypto?
First though, here are some interesting facts that reveal institutional investor attitudes towards crypto assets in general:
- Paul Tudor Jones, a renowned hedge fund manager, gave BTC a huge PR boost in May when he said the cryptocurrency was "the fastest horse" in the race for profits.
- Coinbase said it witnessed a "noticeable uptick" in demand from institutional investors in the first half of 2020.
- A Fidelity survey suggests 36% of institutional investors in the U.S. and Europe own crypto assets.
- Separately, a poll commissioned by Evertas suggests 26% of institutional investors believe pension funds, family offices and sovereign wealth funds are going to start embracing digital currencies "drastically" going forward.
- 39% of retail investors polled by Grayscale Investments said COVID-19 had made Bitcoin more appealing as an asset class.
All of these facts — combined with PayPal's decision to get involved with digital assets — suggests the crypto market is starting to come of age. All of this could send the price of Bitcoin back to all-time highs, almost four years after it hit a record $20,000 USD.
Let's take a look at the biggest institutional investors who have been embracing Bitcoin's volatility since the halving took place.
1. Grayscale Bitcoin Trust
During the pandemic, Grayscale has been buying BTC at breakneck speeds. As of mid-October 2020, the Grayscale Bitcoin Trust held BTC worth $6 billion — and estimates suggest this financial institution owns 2.5% of Bitcoin's total supply. That's about 450,000 BTC. This investment firm also has separate trusts focusing on Ethereum, Litecoin, Bitcoin Cash and Ripple's XRP, among others.
The Grayscale Bitcoin Trust has the biggest allocation of BTC among institutional investors by far — but this hasn't stopped other companies, such as MicroStrategy, throwing sizable amounts of cash behind this cryptocurrency either.
MicroStrategy recently decided to use Bitcoin as its primary treasury reserve asset. The company has bought a total of 38,250 BTC at the time of writing in November 2020, purchasing them for an average of $11,111 each.
The price it paid for this Bitcoin is significant. Since the beginning of 2017, MicroStrategy had reported a net income of $78 million for its business operations. But just two months of holding BTC has resulted in a gain of $100 million after the price of Bitcoin neared $14,000. Further inflows are expected as other institutional investors try to emulate this strategy.
3. Galaxy Digital Holdings
Other institutions embracing blockchain include Galaxy Digital Assets. It amassed a Bitcoin treasury worth $134 million in June 2020 — and at the time of writing, this was worth $230 million. Its stockpile of 16,651 BTC is about 0.8% of the total supply.
Last but not least, let's mention Square. Founded by Jack Dorsey, who is also the CEO of Twitter, the company announced that it had purchased 4,709 BTC for $50 million in October 2020. Just a few weeks after this acquisition, the cryptocurrency stockpile was paying dividends, and was worth $15 million more.
More to Come for Crypto?
As the global economy continues to suffer because of coronavirus, it's likely that we'll see more institutional investors enter this space. These allocations often grab headlines in respected financial publications such as Bloomberg and Forbes — and regulators are beginning to catch up with the crypto industry, introducing regulations that allow companies to acquire digital assets for the first time.
The question now is whether this is a short-term trend, or whether enthusiasm will start to fade, just like we've seen with DeFi.
Some argue that institutional interest in cryptocurrencies is a bad thing, and that it goes against why BTC and ETH were invented in the first place. Others are also concerned about the impact these holdings could have on the price of Bitcoin and other digital assets if they decide to sell.