How institutional investors are driving the bitcoin rally

Institutional investors have increasingly been embracing bitcoin. In fact, while the bull market in late 2017 was driven by retail investors, Canaccord Genuity argues that this time around, institutional investors may be playing a much bigger role in the bitcoin bull market. 

Institutional investors are buying bitcoin

Analyst Michael Graham said in his “Digital Assets Quarterly” report that business intelligence firm MicroStrategy bought $250 million worth of bitcoin on its balance sheet to hedge against inflation in August. The firm then bought another $175 million in September and $50 million in December. MicroStrategy has chosen Coinbase to execute the trades and has issued about $650 million in convertible notes to raise cash that will be used to buy more bitcoin. 

Square was already supporting bitcoin purchases through Cash App, and it announced plans in October to invest 1% of its assets or about $50 million into bitcoin. MassMutual is also diving into the cryptocurrency game with its announcement that it bought $100 million worth of bitcoin for its general investment account through NYDIG. 

Graham notes that in recent months, there has been a rush of institutional investors to buy bitcoin. Coinbase said it boosted its institutional asset base from $6 billion in April to $20 billion in mid-November. Grayscale has also seen strong inflows for its publicly traded digital asset products. The firm’s assets under management more than doubled from $5.9 billion at the end of the third quarter to $12.1 billion currently. 

High-profile investors talk crypto

Many prominent investors have also had bullish sentiment about bitcoin and cryptocurrencies. For example, billionaire Paul Tudor Jones had bullish comments on bitcoin in May when he bought some to hedge against inflation. He also said more recently that he believes the current rally is just in the first inning.

Rick Rieder, CIO of Blackrock’s fixed income division, believes digital assets are hear to stay and predicts that gold could even replace gold as a store of value because it is much more functional than trading physical bars of gold. Legendary investor Stanley Druckenmiller owns bitcoin and said he believes if his gold bet works, crypto will outperform because it has a higher beta. 

Ray Dalio of Bridgewater Associates said he believes bitcoin and other cryptocurrencies have established themselves as “gold-like asset alternatives.” He also believes digital assets have a place in investor portfolios as a diversification tool. Value investor Bill Miller believes the risks of owning bitcoin are lower than ever before, and he predicts that there will be more and more institutional participation as time goes on. 

Other signs of growth among institutional investors

Graham also noted that the increased interest isn’t just among personal holdings by well-known investors. Guggenheim filed with the Securities and Exchange Commission last month to allow its $5.3 billion Macro Opportunities Fund to invest up to 10% of its assets in the Grayscale Bitcoin Trust. 

He also pointed out that there have been some recent moves in the industry to support the increased interest from institutional investors. For example, Fidelity Digital Asset Services expanded its custody offering to Asia, while prime broker Genesis launched a custody solution after it acquired digital custodian Vo1t.


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