Institutional Investors Bring Bitcoin to New Heights

08 Jan, 2021
Institutional Investors Bring Bitcoin to New Heights

In the blink of an eye, Bitcoin (BTC) has captured the attention of one of the most important influences in the financial world:  Institutional Investors. Just one month ago, the price of BTC was just inching toward $20,000 USD. And today: the world’s first decentralized digital currency is sitting close to its all-time high above $41,000, which it reached earlier this week – doubling its price!  How did this happen?  Institutional Investors, also known as big asset managers, are finally embracing digital currencies.

“Big asset managers including Tudor Investment and Guggenheim Partners have announced bitcoin purchases or wagered on prices using futures contracts on the Chicago-based CME exchange,” Yahoo finance reported this week.  “Even old-line Wall Street firms such as Morgan Stanley have weighed in with bullish pronouncements. Analysts for JPMorgan Chase, the biggest U.S. bank, recently predicted a price of $146,000 over the long term.”

What are these entities that are buying up large quantities of BTC? Why the sudden surge in interest by these financial organizations?

To understand the significant role that Institutional Investors are playing in the crypto market, take a look at their role in the traditional fiat markets.

Institutional Investors are defined as “a company or organization that invests money on behalf of other people,” according to Investopedia. “Mutual funds, pensions, and insurance companies are examples. Institutional investors often buy and sell substantial blocks of stocks, bonds, or other securities and, for that reason, are considered to be the whales on Wall Street. The group is also viewed as more sophisticated than the average retail investor, and, in some instances, are subject to less restrictive regulations.”

The power of Institutional Investors in moving the fiat market is significant. Consider this: in a 2019 U.S. Securities and Exchange Commission open meeting, one commissioner stated that Institutional Investors hold roughly 80% of the market value of companies.  As these companies are always on the lookout for the best investment opportunities, when they move to buy or sell, their decisions sway the market.

Now, back to the cryptocurrency market. You may think Institutional Investors sound a lot like the whales who are often are credited with starting a bull or bear run on BTC.  And yes, there is a similarity there.  But in terms of volume and market visibility, Institutional Investors dominate.

When MassMutual, the insurance firm, recently purchased $100 million BTC, The Wall Street Journal excitedly reported “MassMutual Joined the Bitcoin Club with $100 Million Purchase.”  How’s that for influence?

While the total dollar amount purchased was small in terms of the company’s total portfolio, it was significant for the BTC market. JPMorgan strategists were thrilled. “MassMutual’s Bitcoin purchases represent another milestone in the Bitcoin adoption by institutional investors,” they said, according to etftrends. “One can see the potential demand that could arise over the coming years as other insurance companies and pension funds follow MassMutual’s example.”

So what’s driving this sudden interest in crypto by the market movers? Supply and demand is one reason many in the crypto world cite for this run up in the BTC price. The finite number of BTC coins creates value that traditional fiat currencies can’t match: after all, central banks have the ability to print new money.  Institutional Investors may see BTC as a hedge against inflation, especially as the U.S. government continues to add stimulus to keep the economy afloat as the coronavirus continues to surge.

Scott Minerd, Global Chief Investment Officer of Guggenheim Investments, which manages $230 billion in assets, summed up the surge in the BTC price up this way in a recent Bloomberg interview: “It’s based on the scarcity and relative valuation to things like gold as a percentage of GDP. Bitcoin actually has a lot of the attributes of gold and at the same time has an unusual value in terms of transaction.”

Minerd also went on record stating he thought the price of BTC “should be worth $400,000.”

Institutional Investors.  They’re the game changers in the crypto market.  Bubble or bust, they now have skin in the crypto game at a level never seen before.  Their power to move crypto into the mainstream will be key. Watch and see.

Joyce Pavia Hanson