With Bitcoin (BTC) price sentiment still optimistic after the uncertainty caused by the US presidential election, institutional investors seem increasingly interested in betting on the markets. For the seven-day period ending October 27, the Grayscale Bitcoin Trust, under the direction of Grayscale Investments posted a record $ 215 million (15,907 BTC) entry, surpassing all weekly entries recorded since its inception.
At the current rate it is estimated that Grayscale is well on the way to hosting 500,000 BTC by the end of 2020, which is 2.7% of the circulating bitcoin supply. It could contain up to 5% by 2021. According to Grayscale’s “Digital Asset Investment Report” for the third quarter, the average weekly investment in Grayscale’s Bitcoin Trust rose 40% from a 12-month average of $ 39.5 million to $ 55.3 million. Additionally, companies like MicroStrategy, Square, and Stone Ridge have all bought Bitcoin as cash reserve, which will drive their sales growth in 2020.
Increasing institutional investments in Bitcoin can also be seen on the Chicago Mercantile Exchange. Cointelegraph discussed this with Tim McCourt, global head of the CME Group’s equity and alternative investment products index, who told Cointelegraph: “We have seen an increase in Large Open Interest Holders (LOIHs), which could indicate greater institutional involvement in our Bitcoin futures markets.“.
According to the CME, LOIHs are companies with more than 25 CME bitcoin futures contracts, and each contract contains 5 bitcoin. This means that a company must have at least 125 bitcoin, which is roughly $ 1.9 million in value. Before the election, the number of LOIHs rose to an all-time high of 102.
Set the trend
Since bitcoin futures indicate an institutional interest in the asset, McCourt looked at the evolution of the Bitcoin futures metric ahead of US election night: “Overnight trading volume of 6,700 Bitcoin futures contracts in CME (33,500 Bitcoin equivalents), a 75% increase from 2020 average to date “. He added that open interest had also increased by 20%.
Jay Hao, CEO of the OKEx exchange, told Cointelegraph that macroeconomic factors such as a second wave of coronavirus-related quarantines would have an inflationary impact across the country: “This is putting massive money pressures on and there is growing concern about the possible harmful effects of inflation on fiat currencies, particularly the dollar.“.
In addition to these recent major developments, PayPal announced that it would launch cryptocurrency payment services in early 2021. Even JPMorgan Chase has rated Bitcoin positively, stating that the asset has “long-term upside potential” as it competes more closely with gold as an alternative asset and becomes a more prominent aspect of the investor universe for millennia.
Since Grayscale mutual funds look at hedge fund dominated investments, it is an indication that bitcoin, like gold, is becoming a hedging tool to protect investors from market uncertainty and security, increasingly being used to capture the spread of arbitrage. Hao also noted that Bitcoin’s performance generated customer demand for investment firms and hedge funds:
“Bitcoin is already up more than 115% this year, compared to gold by less than 30% and the SP around 8%. Bitcoin offers investors a real opportunity to make a profit on their money rather than assets like cash risking negative returns. This just cannot be ignored. “
Several other events have caused this change of perspective in large companies as well. Companies like Microstrategy, Square, and Stone Ridge that buy Bitcoin as cash reserve will pave the way for other companies to follow suit, especially given the significantly positive business impact these investments have had, as has been the case with MicroStrategy and Square. and will be the biggest driving force behind your income. Hao believes that “if we continue this year and move into 2021, which will be very bullish on Bitcoin, this will” create a big trend. We have also seen regulation lean in favor of Bitcoin when US banks in Head towards Bitcoin. Now they can guard it. “
Bitcoin’s bull run could be driven by institutional investors
Given the turbulent times resulting from the COVID-19 pandemic, the has led to an increase in unemployment rates around the world. Retail investors may be hesitant to invest funds in unknown assets due to the lack of media coverage of blockchain technology and its products.
Institutional investors, however, appear to be taking the lead by taking advantage of the high returns offered by the digital asset class. John Todaro, research director at TradeBlock, a cryptocurrency investment platform, believes this bull run will be led by institutional investors:
“The main drivers lately have been institutions. In addition, the spot volume on institutional platforms has risen significantly. LMAX digital, which mainly focuses on institutional traders, has recently had its highest volume month on record. Retail investors They were noticeably absent during this bull run. You will likely enter the room at higher levels if the mainstream media is serious about the room. “
This is also reflected in the open positions and the average daily volume of futures traded on CME, the platform that institutional investors often use to access this market. Open interest was up 20% in November compared to October, which in turn was well above the average open interest in September. Since institutional investors tend to trade in larger US dollar denominations and in large chunks, they have likely pushed the price of the underlying asset, Bitcoin, up.
Sharing Innovations and DeFi Products Fuel Viability
In addition to supporting the liquidity and stability of Bitcoin prices, there are various ways an exchange can optimize its offerings to better suit traditional and institutional investors. Given that many of these investors have never shown interest in Bitcoin as an asset class in their portfolio, it seems important that the crypto market moves in the direction of providing products that institutional players may be familiar with. Todaro outlined why this could be a game changer:
“More and more institutional investors are allocating Bitcoin capital. Some of these funds may not have a mandate or are unfamiliar with custody solutions to buy Bitcoin for themselves.”
While the DeFi hype seems to have cooled lately, the innovations and products in this space are very likely to have a positive impact on the asset class as more investors become interested in their cases. of uses and applications. Hao also pointed out the possibility of a collaboration between Centralized Finance (CeFi) and DeFi:
“To accelerate the growth of the space, CeFi and DeFi can work together to offer users more attractive and robust products so that they can make their money in an alternative financial system that will perform well on them unlike them.” of the existing currently “.
Todaro agreed that the DeFi market plays an important role in the development and growth of the institutional market: “As long as the industry continues to innovate through DeFi, bring new products to the market and provide sufficient liquidity to ensure the continuity of institutional activities, we must continue to grow.“.
Although the Office of Currency Verifier at the Spanish Office of Currency Verifier in the United States has made it clear that banks operating in the United States are authorized to provide cryptocurrency custody services, So far, there does not seem to be much interest from government and regulators in creating a clear framework that would allow an even larger number of investors and institutional companies to engage with cryptocurrencies and blockchain technology.