Bitcoin

MicroStrategy’s purchase of Bitcoin shows that institutional investors are trying to reduce risk

The big players’ rollout of Bitcoin (BTC) is back on the agenda following MicroStrategy’s recent purchase of BTC for $ 250 million. Industry commentators have also stated that companies joining Bitcoin will be making significant efforts to take the valuation of BTC to a new level.

With the coronavirus pandemic adversely affecting economies around the world, investors seem to be looking for safe havens. Actually, The focus on both BTC and gold results in a significant link between their respective price actions as central banks continue to pursue aggressive quantitative easing. With a company like MicroStrategy hedging with Bitcoin, that pivot now seems to be expanding to Wall Street.

Reports from the Trump administration seeking to delay the collection of social security wage taxes are also sounding the alarm in the United States. The likely outcome of this executive order is that more money will be printed to fund the country’s social security, which consequently means a greater devaluation of the US dollar.

Well established retail acceptance

MicroStrategy’s purchase of Bitcoin shows that institutional investors are trying to reduce risk
MicroStrategy’s purchase of Bitcoin shows that institutional investors are trying to reduce risk

Since the beginning of 2020, the number of addresses has steadily increased with 0.01 BTC and 0.1 BTC, Data from market intelligence platform Glassnode says the number of “wholecoiners” – wallets with at least 1 BTC – also increased in 2020, suggesting a constant culture of “sat stacking” from part of various investor groups.

When the U.S. government posted the stimulus payments public in April, Coinbase reported an increase in BTC purchase amounts on the order of $ 1,200 – the exact check amount. Bitcoin, which was bought for $ 1,200 at the time, is now worth more than $ 1,600, resulting in profits made by BTC due to a weakening of the USD over that period. Even when Bitcoin fell to $ 3,800 during the Black Thursday market crash, exchanges reported an increase in retail BTC purchases.

Platforms like Square’s CashApp even leverage the sat-stacking culture with features to automate regular micro-purchases from BTC. Studies show that “averaging the dollar cost” – the practice of dividing the total investment into fixed intervals – ensures a positive return for Bitcoin investors regardless of volatile price movements. Hence, the events of 2020 so far suggest that Bitcoin, as a viable asset, will be seen as a safe haven.

MicroStrategy buys $ 250 million worth of Bitcoin

On August 11th, MicroStrategy – the world’s largest business intelligence company – bought 21,454 BTC, valued at $ 250 million. The operation revealed that MicroStrategy was trading cash for BTC as treasury reserve assets, which industry commentators said could be a turning point for the institutional adoption of bitcoin. Michael Saylor, CEO of MicroStrategy, echoed the opinion of many BTC supporters and stated in a press release: “Bitcoin is digital gold – harder, stronger, faster and smarter than any money that preceded it”.

Saylor’s comments offer a snapshot of how the perception of Bitcoin appears to be changing on Wall Street. In December 2013, when a BTC was worth $ 520, the MicroStrategy CEO didn’t believe its value proposition:

#Bitcoin Days are numbered. It only seems like a matter of time before it suffers the same fate as online gambling.

– Michael Saylor (@michael_saylor) 19th December 2013

In fact, the Wall Street numbers in 2020 have shown significant interest in Bitcoin. Billionaire hedge fund investor Paul Tudor Jones announced in May that 1% of his total assets in BTC represent a hedge against inflation, making Bitcoin the de facto leader in the emerging global financial landscape. Although Goldman Sachs scrapped BTC as an investment earlier this year, it is reportedly considering customer inquiries for cryptocurrency for another 180 degree turn.

Brian Kerr, CEO of DeFi Kava Labs banking services, told Cointelegraph so Today more than ever, companies need solid risk management planning: “It is the job of every finance department in the company to manage the risk.” He added, “It is somewhat irresponsible for finance departments not to consider Bitcoin to hedge the risks of their wealth.” Konstantin Anissimov, CEO of Crypto Exchange CEX.IO, pointed out to Cointelegraph the impact of a publicly traded company investing in Bitcoin:

“What is really important is that a public company with strict financial due diligence for shareholders has taken an essential position with BTC, has publicly announced it (as it should) and has taken a firm position that this move will not.” This will adversely affect the CSR share price. If this position were taken by a private, albeit large, corporation, it would not be such big news. “

The announcement of the purchase of Bitcoin also had a positive effect on MicroStrategy’s action. when it increased by 12%.

Bitcoin as a treasury

In June 2020 Cryptocurrency research firm Messari estimated that institutional investors investing 1% of their capital in Bitcoin could lower the spot price of BTC to $ 50,000. With such a surge, Bitcoin’s market cap will hit the $ 1 trillion mark., similar values ​​to commodities like gold bars. A public company like MicroStrategy that has Bitcoin on its corporate balance sheet as a corporate investment certainly falls into the same institutional investment category.

The move also signals an emerging sense of Bitcoin as a more mature asset than in previous years, Anissimov said. “”The market now has a significant proportion of professional exchanges and institutional investors, which dampens volatility and increases market liquidity. Regulation is also more mature in certain countries“said.

For Rubén Merre, CEO of NGRAVE hardware wallet for cryptocurrency, Bitcoin’s improving fundamentals such as the rapid increase in hash rate over the years and the proliferation of trading in the asset are testament to its maturity. For Merre, investors see Bitcoin as a way to diversify their investments, as there is a growing mismatch between the stock market and local economic conditions:

“Stimulus spending has a big impact on stock market prices and even the behavior of bubbles. Meanwhile, economic growth does not fully follow prices, so there is a mismatch. The risk / reward ratio is not the same.” It makes a lot of sense, one might argue. Therefore, it is important for institutional investors to diversify. “

A higher institutional stake in Bitcoin should increase the life of the asset and further increase its overall attractiveness. Corporations also have considerable lobbying power and are pushing for favorable regulations that will fuel further growth in the fledgling crypto scene. However, the sheer volume of long positions associated with big money investors can also trigger a new wave of FOMO in retail. As the distribution of new coins decreased after the halving in May 2020, The demand could exceed the supply of Bitcoin, which should put the spot price under pressure.

Potential for a sharp increase

Another interesting aspect of MicroStrategy’s purchase of Bitcoin is that it is a direct exposure to the asset as Saylor believes that Bitcoin “more potential for long-term appreciation than cash“. Usually, The institutional interest in BTC involves indirect investments through shares in hedge funds or derivative contracts. Therefore, it was not popular to hold Bitcoin either through your own custody or through custody by a third party.

However, with improved regulatory clarity, this trend could be due to a change. Already in July The Office of the Currency Auditor gave federally licensed US banks permission to provide a crypto custody service. On the news, US domestic banks will join the growing trend by big banks to expand their custody services to cryptocurrencies, helping big money investors who are legally required to store fixed assets with platforms. authorized third party custody.

Direct exposure to Bitcoin carries certain risks, as the largest cryptocurrency by market capitalization is volatile at times. However, the upside potential for investors with significant positions is the expectation that the spot price will hit a new all-time high. As Kerr said, many believe that Bitcoin “is a call option in today’s financial system as it can go to zero, but the benefit is enormous when it occurs”.

Bitcoin is no stranger to parabolic progress within a bull cycle that usually takes place within a few months, as opposed to the more measurable gains for gold and silver. For Anissimov, this potential return on investment is an attractive incentive for institutional actors interested in riskier alternatives.

So most seem to agree that the inflow of institutional money into Bitcoin will drive the spot price even higher. In a communication to Cointelegraph, Nisa Amoils, Managing Partner of the Crypto Hedge Fund Frontier Capital, summed up BTC’s investment thesis:

“People are looking for a way to protect their assets or that of their shareholders. Bitcoin has always been a great tool for this purpose. It’s solid money built for a digital world. The proven shortage of bitcoin is growing. It’s growing.” Value of the US dollar, since the demand for the artificially limited supply increases the demand considerably “.

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