Because institutions suddenly give a damn about Bitcoin

Without a doubt, Bitcoin (BTC) has become an increasingly popular asset to own among institutional investors. By the end of the second quarter of 2020, Fidelity reported in a survey of nearly 800 institutional investors that 36% owned crypto assets. A separate survey, conducted by cryptocurrency insurer Evertas, shared that respondents believe hedge funds will dramatically increase their holdings in cryptocurrencies. It also predicted that 90% of institutional cryptocurrency holders expect to invest even more in Bitcoin next year.

Related: Bitcoin’s corporate treasures are here, which can only mean good things

From MicroStrategy and Grayscale to JPMorgan and Goldman Sachs, Bitcoin has solidified its position in investment portfolios as an asset to be held as a hedge against inflation and currency devaluation. However, beyond that, there are real technical reasons why institutional investors are becoming increasingly optimistic about Bitcoin, with some predicting it will hit $ 1 million by 2025.

Related: Time is our best friend: Bitcoin’s 12-month trajectory up to $ 100K

While the future value of Bitcoin may continue to be a topic of debate, the reality is that investors and financial institutions now believe that “holding BTC may prove less risky than having no exposure to Bitcoin at all.” In fact, according to a crypto research firm Messari, more than 81,000 BTC belong “to the treasures of publicly traded companies”.

In total 81,154 BTC, or 0.5% of all BTC in circulation, is held in the treasuries of listed companies.

https://t.co/Rx6Z8a5NqN pic.twitter.com/DHB7N2dm8J

Messari (@MessariCrypto) November 11, 2020

But what drove the 2020 Bitcoin rally and what are institutional investors in Bitcoin seeing now that they didn’t see before?

The borderless network of Bitcoin and blockchain technology

Bitcoin acts as a non-sovereign currency unrelated to other asset classes. For institutional investors, it serves as a diversification tool to hedge against highly correlated markets such as the S&P 500, Nasdaq, and the dollar. Two main areas where Bitcoin and blockchain technologies offer the most value to institutional investors include secure, borderless transactions and access to new opportunities that cannot exist in traditional financial markets.

Bitcoin’s innovative technology, including smart contracts, borderless payments, lower fees, and faster, safer transactions are the catalyst that will prepare us for a future where national currencies break out of their current physical form and become digitized.

Related: Bitcoin is the best treasure reserve asset humanity has ever had

With US dollar inflation on the horizon, major investors such as Ray Dalio and Paul Tudor Jones are also beginning to “appreciate Bitcoin more and more” and have identified it as the “best hedge against inflation”, comparing it to gold. and copper. As banks and technology providers continue to invest heavily in research and development projects related to the verification and recording of financial transactions, such as JPMorgan’s new corporate blockchain and digital currency house Onyx, we will continue to see institutions increase their presence. in the space.

Introducing quality custody solutions

Depositaries are used by financial institutions such as hedge funds and mutual funds, which are obliged to hold client assets with a professional depository for regulatory purposes.

Previously, institutional investors were wary of Bitcoin and other cryptocurrencies due to the regulatory environment and, until recently, the broader crypto ecosystem was also sorely lacking in institutional-grade cryptocurrency custody solutions. With an urgent need for adequate custodians to secure the growing amount of crypto assets and greater clarity on regulatory guidelines for operating and investing in cryptocurrencies, an industry of institutional grade custody solutions has emerged.

Anchorage, a recently launched cryptocurrency custodian backed by Andreessen Horowitz and a number of other major blockchain-focused venture capital firms, is one such solution. It has been incorporated with the ethos to provide a crypto-native digital asset keeper for institutional investors. Bank Frick, a Liechtenstein-based private bank, has made it a priority to offer a range of blockchain banking services, including token launch support, cryptocurrency trading and custody of digital assets. The regulated bank’s services are aimed at professional market operators and financial intermediaries in Europe.

Banks have also been given the green light to cryptocurrency companies. In a note to the public, Senior Deputy Controller and Senior Advisor to the U.S. Office of Currency Controller Jonathan Gould wrote in July:

“We conclude that a national bank can provide these cryptocurrency custody services on behalf of clients, including holding the unique cryptographic keys associated with the cryptocurrency.”

This marked a major industry-wide development, allowing regulated financial institutions to hold the same custody services previously held exclusively by specialist firms.

Bank custody options, coupled with the emergence of crypto insurance companies like Paragon International Insurance Brokers, which was recently integrated into Bitstamps offerings, are providing policies for digital assets like Bitcoin to be protected both online and offline, covering a range of circumstances related to the crime.

The regulatory and custody solutions adopted provide security for institutional investors who might otherwise have been skeptical. They are also helping to keep cryptocurrency exchanges to a higher standard by encouraging them to protect investor money from theft or embezzlement. This has become an important catalyst for making digital assets more attractive to institutional investors and funds.

Institutional application for Bitcoin

As the cryptocurrency market sees an increase in institutional investment, with large purchases completed by more and more companies, it has correlated with a rally in the markets.

According to a report from cryptocurrency derivatives platform Zubr, institutional investors are moving towards holding Bitcoin in “physical” form instead of cash-settled futures. The integration of institutional investors into the crypto ecosystem and their interest in holding is a positive sign for mainstream adoption. The similarities these investors share with holders indicate an easy transition from traditional finance to the digital economy, instilling trust in Bitcoin and representing an understanding and belief in technology.

Also serving both sides is the high potential benefit of decentralized finance, which has introduced a flow of new business flows, products and services. Services like Maker and Compound allow people to take out loans of any size in minutes without having to reveal their identity to a third party, while the returns associated with new DeFi products translate into earnings that exceed savings accounts, certificates of deposit and other traditional options .

The potential benefits of the DeFi revolution are just another reason why the cryptocurrency dynamic is turning into what believers have always wanted: a digitized, borderless asset.

The proof is in the numbers where institutional investors come for cryptocurrencies

According to a recent survey by Fidelity Asset Management, 80% of the institutions surveyed find it interesting to invest in digital assets, while the number of Bitcoin addresses is constantly increasing. Addresses with over 1,000 and 10,000 Bitcoins also increased considerably. Coupled with falling trade balances, this suggests that whales and larger investors are choosing to hold Bitcoin.

Additionally, a report by the Big Four auditor KPMG found that major banks, asset managers and skilled custodians are launching a new wave of institutional-grade crypto products and services. Institutional investments in cryptocurrency confirm confidence in the digital asset from a place of significant power.

This article does not contain investment advice or recommendations. Every investment and trading move carries risk, readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed herein are solely the author’s and do not necessarily reflect or represent the views and opinions of Cointelegraph.