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With Bitcoin (BTC) price sentiment continuing to remain bullish following the uncertainty caused by the US presidential election, institutional investors appear to be more interested in betting on the markets. In the seven-day period ending October 27, Grayscale Bitcoin Trust, operated by Grayscale Investments, saw a record inflow of $ 215 million (15,907 BTC), which surpassed all of its weekly inflows seen since the beginning.
At the current pace, the grayscale is estimated to be on track to contain 500,000 BTC by the end of 2020, which represents 2.7% of Bitcoin’s circulating supply. By 2021, it could hold up to 5%. According to Grayscale’s “Digital Asset Investment Report,” for the third quarter, the average weekly investment in Grayscale’s Bitcoin Trust increased 40% to $ 55.3 million from a 12-month average of $ 39.5 million. Additionally, companies like MicroStrategy, Square, and Stone Ridge have bought Bitcoin as a cash reserve, which is driving their revenue growth in 2020.
The rise in institutional investment in Bitcoin is also seen in the Chicago Mercantile Exchange. Cointelegraph discussed this with Tim McCourt, global head of the equity index and alternative investment products at CME Group, who told Cointelegraph: “We have seen an increase in large open interestholders (LOIH), which could be indicative of increased institutional participation in our bitcoin futures markets. “
According to CME, LOIH are entities holding more than 25 CME Bitcoin futures contracts, with each contract containing 5 Bitcoins. This means that an entity should hold at least 125 Bitcoins, which is about $ 1.9 million worth. Before the election, the number of LOIHs grew to an all-time high of 102.
Establish the trend
As Bitcoin futures are indicative of institutional interest in the asset, McCourt further elaborated on how Bitcoin futures metrics fared until election night in the US: “Overnight Trading Volume of 6,700 Bitcoin Futures Contracts CME (33,500 bitcoin equivalent), 75% higher than the average in 2020 to date. “He also added that open interest also grew by 20%.
Explaining the factors that led to this increased institutional interest in Bitcoin, Jay Hao, CEO of cryptocurrency exchange OKEx, told Cointelegraph that macroeconomic factors such as a second wave of coronavirus-related lockdowns nationwide would have an inflationary impact. : “This is leading to huge printing of money and there is growing concern about the possible damaging effects inflation will have on fiat currencies, particularly the dollar.”
In addition to these important recent developments, PayPal announced that it will launch crypto payment services in early 2021. JPMorgan Chase also turned bullish on Bitcoin, stating that the asset has “long-term upside potential” if it competes more closely. with gold as an alternative asset, with millennials growing to become a more important aspect of the investor universe.
As Grayscale’s investment funds see investments dominated by hedge funds, it is indicative that Bitcoin is also becoming a hedging tool, like gold, to protect investors from market uncertainty and is increasingly used to capture. the spread of arbitrage. Hao further pointed out how Bitcoin’s performance has created customer demand for investment firms and hedge funds:
“Bitcoin has already risen by over 115% since the beginning of the year compared to gold by less than 30% and the S&P by around 8%. Bitcoin offers investors a real chance to make a profit on their money rather than risk-free assets such as cash which are reporting a negative return. This is something that simply cannot be ignored. “
Various other events have also caused this shift in perspective by large corporations. Companies like Microstrategy, Square, and Stone Ridge that buy Bitcoin as a cash reserve will pave the way for other companies to follow suit, especially considering the significantly positive business impact these investments have produced, as was the case with MicroStrategy and Square. , becoming the main driving force behind their revenues. Hao believes that “This will start a major trend as we continue this year and move into 2021 which will be very bullish for Bitcoin. We have also seen regulation tilt in favor of bitcoin as US banks are now able to guard it.”
Bitcoin’s bull run could be led by institutional investors
Considering the turbulent times resulting from the COVID-19 pandemic, which has led to rising unemployment rates around the world, it is possible that retail investors are slightly reluctant to invest funds in assets they are unfamiliar with due to lack of media coverage. mainstream of blockchain technology and its products.
However, institutional investors appear to be taking the lead by capitalizing on the high returns the digital asset class has to offer. John Todaro, director of research at TradeBlock – a cryptocurrency investment platform – is of the opinion that this bull run is indeed led by institutional investors:
“The main drivers recently have been from the institutions. In addition, spot volumes on institutional platforms have increased considerably: LMAX digital, which focuses primarily on institutional block traders, had its highest volume month on record recently. Retail investors have been noticeably absent during this bull run. They will likely enter the space at higher levels when the major media begin to cover the space in earnest. “
This is also evident in the open interest and average daily volumes of futures traded on CME, the platform often used by institutional investors to access this market. Open interest grew by 20% in November compared to October, which, in turn, was significantly higher than the average open interest in September. As institutional investors tend to trade in larger US dollar face values and in large blocks, presumably it is they who have caused the price of the underlying asset, Bitcoin to rise.
The innovations brought by DeFi exchanges and products drive profitability
In addition to supporting Bitcoin’s liquidity and price stability, there are various ways an exchange can optimize its offerings to better suit traditional and institutional investors. Since many of these investors have never been interested in Bitcoin as an asset class in their portfolio, it seems essential that the cryptocurrency 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 capital to Bitcoin. Some of these funds may have no mandates in place, or are unfamiliar with custody solutions, to purchase Bitcoin itself. “
Furthermore, even though the hype around decentralized finance appears to have cooled recently, the innovation and products seen in the domain are very likely to have a positive impact on the asset class, attracting more interested investors through their use cases and applications. . Hao also hinted at the possibility of collaboration between centralized finance and DeFi:
“To accelerate the growth of the space CeFi and DeFi can work together to offer more attractive and robust products to users to enable them to make their money work for them in an alternative financial system that actually brings them a high return, unlike the one existing at the moment. “
Todaro agreed that the DeFi market has an important role to play in the development and growth of the institutional market: “As long as the industry continues to innovate through DeFi, launching new products, as well as providing ample liquidity to ensure business continuity. institutional, then we should continue to rise. “
Even though the Office of the Comptroller of the Currency has made it clear that banks operating in the United States are allowed to provide cryptocurrency custody services, so far there doesn’t seem to be much interest from the government and regulators to create a framework. clear that allowing even more institutional investors and companies to engage in cryptography and blockchain.
