With an increasing number of institutions showing interest in Bitcoin, the world’s most popular cryptocurrency appears set to accelerate into the mainstream. With a current market cap of over $654 billion and a recent peak of almost $1.2 trillion in its last run, there has been a remarkable shift in perception from institutions who initially dismissed Bitcoin but have since recognised its value.
Institutions have steadily come to understand Bitcoin’s credibility as a store of value with many describing Bitcoin as a safe haven alongside gold. This could not be more evident than during this pandemic where Bitcoin incredibly outperformed every other asset class in some way. With the extraordinary circumstances that 2020 brought along, Bitcoin boosted its credibility as a capital-preservation asset that can serve as a hedge against financial uncertainty.
Institutions that embrace Bitcoin
Sentiment amongst investors and financial institutions is that holding Bitcoin is less risky overall than not having any exposure to the cryptocurrency. A recent crypto study undertaken by research firm, Messari, highlighted that over 81,000 BTC belongs to the treasuries of publicly traded companies. Institutional investors appear to be most attracted to the unique value offered by Bitcoin and blockchain technologies as they are secure, borderless transactions and provide access to fresh opportunities that traditional financial markets do not offer.
Evidence of this can be seen in the willingness of governments around the world to adopt Bitcoin into their financial systems. El Salvador recently passed into law Bitcoin as an official means of tender while Vietnam’s Prime Minister has recently sent an official order for a pilot implementation of cryptocurrencies within its borders. You can read more about those developments here.
Biggest institutional investors in Bitcoin
In terms of institutions that are buying Bitcoin, there are some notably large organisations that have made investments worth hundreds of millions of dollars. These include investment funds holding Bitcoin on behalf of investors as well as companies that have purchased Bitcoin as a reserve asset.
Publicly traded companies such as MicroStrategy and Tesla have adopted Bitcoin as a reserve asset and have direct control of their BTC funds. MicroStrategy is a well-established business analytics platform with an estimated 71,000 BTC in reserve valued at around $2.3 billion. Tesla is another institutional giant with the electric car maker investing over $1.5 billion in cryptocurrencies, with a large portion of that investment on Bitcoin. Other notable institutions that have massive Bitcoin investments include Galaxy Digital Holdings, Grayscale Bitcoin Trust, and Ruffer Investment Company.
Benefits of Bitcoin investments for institutions
Institutions are attracted to blockchain technology’s ability to enforce systemic transparency that helps to eliminate fraud. Since these operate on an open and decentralised platform, all transactions are monitored from start to finish across the network. With these protocols, there is little doubt about the source of funds and there is no need to use an intermediary to transact. Moreover, there is almost no chance of chargebacks since all transactions are final and immutable.
Speed and transaction costs
In terms of speed, traditional financial institutions usually take many hours up to a few days for transactions to be processed and are usually labour-intensive and costly. Block technology, on the other hand, can facilitate transactions in a matter of seconds in a cost-effective manner which amounts to fractions of a cent. Through blockchain technology, both transaction costs and speed can be drastically lowered without the need to compromise stringent security measures.
Access to emerging markets
Since cryptocurrencies like Bitcoin are hosted on decentralised ledgers, users are not required to have a traditional bank account in order to transact. This is especially important in developing nations where an estimated 1.7 billion people are classified as unbanked. With this open and accessible platform, institutions will have access to an untapped market and offer much needed services to those who have previously been out of reach.
Bitcoin outlook for institutional investors
With growing interest in institutional investment of Bitcoin, the effects of major investments from global companies certainly boost Bitcoin’s profile and elevate its status to greater heights. Tesla’s massive investment is proof of how impactful institutional investment is towards the stability of Bitcoin.
Looking into the long-term, Bitcoin currently has a circulation supply of 18.75 million BTC and a maximum supply limit of 21 million BTC. This means that only 2.25 million BTC is left to mine and is bound to lead to a massive supply crunch with growing interest from institutional investors. This may cause the price of Bitcoin to shoot up, recovering from a downward trajectory in recent times.
We are on the cusp of a new financial age where Bitcoin has certainly forged its presence amongst institutional investors. Many businesses have begun to embrace this new technology, engage with new markets, and ultimately boost their profit margins. Since its introduction, Bitcoin has proven to be robust enough to build an entire ecosystem around. It is therefore important for institutions to consider Bitcoin as an investment in order to optimise its value.
While our team at Wisly are highly knowledgeable on cryptocurrencies, please note that we are not financial advisors and are not licensed to provide guidance and/or advice on crypto markets. The information that we provide is merely our opinion. It is important for institutions to conduct their own research before committing to any cryptocurrency investment. You can, however, use established platforms like Wisly to track and analyse your institutional investments. Good Luck!