Cryptocurrency

Institutional Interest in Bitcoin and Trading in Cryptocurrencies.

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Snapshot:

  • Bitcoin market cap analysis.
  • Institutional interest in BTC.
  • Notable developments in the Crypto space.

The market cap of bitcoin crossed USD 1 trillion for the first time on 21 February 2021 driven by mainstream adoption of cryptocurrency by some of the biggest institutions and corporations. After reaching an all-time high above $57,000 last week, there was a slight correction in the market but owing to the announcement last Wednesday that Square, a payment platform, is investing USD 170 million in bitcoin, the price went up again crossing the $50,000 mark. Currently, the BTC price stands at USD 49,131 as shown in the chart below:

Source: CoinMarketCap

The recent appreciation of BTC price and the asset being used as a store of value while being compared to gold can be explained not just by increasing institutional investments in the space but also by increasing devaluation of other currencies such as the USD. BTC is being considered as a hedge against currency debasement as the monetary expansionary policies of the FED increased the US M2 money supply by a record 28 per cent during the Covid-19 crisis. When compared to fiat systems, with its fixed money supply of 21 million, bitcoin is a non-discretionary asset so no central authority can inflate its supply over time. With its inherent transparent and immutable monetary policy,  bitcoin provides a strong case for a powerful store of value function of money, thus, gaining wider acceptance among institutional investors. 

Bitcoin price rally driven by Tesla’s investments worth $1.5 billion 

In the recent past, one of the major reasons for the price of bitcoin skyrocketing is Elon Musk’s Tesla investing in bitcoin with USD 1.5 billion of investments and potentially accepting bitcoin for buying Tesla products. The news was revealed in an SEC filing that the investment amounts to around 7.7 per cent of Tesla’s USD 19.4 billion cash holdings, as of Q4 2020. Many other large corporations, hedge funds, Private Equity, and institutional investors followed suit.

Another major reason for crypto going mainstream has been PayPal’s announcement for setting up a dedicated crypto business unit allowing crypto payments for its 26 million merchants and 300 million users in 2020. 

MicroStrategy’s CEO:  Bitcoin is the digital gold as a hedge against inflation 

Microstrategy announced on Monday that an additional $15 million were spent to buy bitcoin, adding another 320 bitcoins to its kitty. Prior to this, the company’s CEO Michael Saylor had gone public to announce that the company sold debt worth USD 1.05 billion in debt securities for adding 295 BTC to its already existing large pool of BTCs. Last week, the company bought 19,452 bitcoins worth USD 1.03 billion adding further to its already existing 71,079 BTC in reserve. Its total bitcoins holdings to date are 90,859.

In Binance blockchain week, Saylor justified his reason for choosing BTC over gold as a reserve asset: “if you’re looking for a non-fiat derivatives store of value in an inflationary environment, that’s logical that you would settle upon Bitcoin as digital gold.”

Morgan Stanley with its Blockchain wing Onyx and it’s much-talked-about JPM coin has been an early entrant from the banking industry in bitcoin. Recently, Morgan Stanley also bought a 10.9 per cent stake in MicroStrategy which gives the company exposure to bitcoin over USD 2.5B in value. 

Company Name

Bitcoin

Company Name

Bitcoin

MicroStrategy inc. 90,859 BTC Bitwise 10 Crypto Index Fund 11,430 BTC
Tesla, Inc. 48,000 BTC Purpose Bitcoin ETF 8,289 BTC
Galaxy Digital Holdings 16,402 BTC Marathon Patent Group 4,813 BTC
Square inc. 8,027 BTC Hut 8 Mining Corp 3,012 BTC
Grayscale Bitcoin Trust 649,130 BTC Voyager Digital LTD 1,239 BTC
MTGOX K.K. 141,686 BTC Riot Blockchain, Inc. 1,175 BTC
Block.one 140,000 BTC WisdomTree Bitcoin 5,700 BTC
The Tezos Foundation 24,808 BTC Ninepoint Bitcoin Trust 5,478 BTC
Stone Ridge Holdings Group 10,889 BTC CI Galaxy Bitcoin Fund 3,306 BTC
Grayscale Digital Large Cap  7,369 BTC Bitcoin Group SE 2,501 BTC
CoinShares / XBT Provider 69,730 BTC Leonteq Bitcoin Tracker USD 2,174 BTC
Ruffer Investment Company Ltd 45,000 BTC Osprey Bitcoin Trust 1,639 BTC
3iQ The Bitcoin Fund 23,363 BTC 21Shares AG 6,945 BTC
ETC Group Bitcoin ETP 13,438 BTC

Source: BitcoinTreasuries.org

Click here for the real-time market valuations.

A merchant bank with a crypto focus called Galaxy Digital Holdings holds BTC worth over USD 770 million, around 16,402 BTC according to bitcointreasuries.org

The testament to ever-increasing institutional investments in bitcoin is the value of bitcoin holdings with GrayScale which is the world’s largest institutional crypto custody service. In 2021, they added 43,000 BTC to their holdings with a current value of bitcoins well above USD 30 billion. 

Grayscale investments in BTC 

Currently, Grayscale Investments hold well above 3 per cent of the total bitcoin supply, managing around 656,166 BTC across its  Grayscale Bitcoin Trust, trading as “GBTC” and Grayscale Digital Large Cap Fund. GBTC shares are currently trading on the OTCQX under the ticker GBTC.

Apart from its Bitcoin Trust, Grayscale also offers investment vehicles to its clients and runs an open-ended fund called the Grayscale Digital Large Cap Fund, exposing them to a basket of large-cap digital assets. Along with bitcoin that accounts for roughly 81 per cent of all the holdings (amounting to 7,036 BTC worth over USD 330 million) as of January 2021, the fund also comprises Bitcoin Cash, ETH, and Litecoin. 

The fund carried out a reshuffling of its portfolio by adjusting weights as it removed XRP from its fund in January 2021, replacing it with other cryptocurrencies. 

Other major corporations investing in cryptocurrencies 

Recently, London-based Ruffer Investment asset manager also joined the bitcoin club, allocating 2.5 % of its Multi-Strategies Fund to bitcoin in December 2020. The company’s argument for investing in BTC is that cryptocurrencies can serve as a “small but potent insurance policy against the continuing devaluation of the world’s major currencies.”

Since its investments, the company has already made substantial gains as their 45,000 BTC are now worth more than USD 2 billion as compared to USD 870 million at the time of investment. 

The Bitwise 10 Crypto Index Fund which was launched in December 2020, is the first US-based publicly traded crypto index firm. Out of all the products that Bitwise offers, the fund has witnessed the maximum growth with around 3/4th of its AUM being bitcoin worth about USD 536 million or holding around 11,430 BTC. The fund allows investors to buy shares representing cryptocurrencies as it tracks the top 10 cryptocurrencies. 

In a statement made by the CEO of Bitwise, Matthew Hougan told Decrypt  that “In the US it’s about a $15 trillion market, it’s a market that’s aggressively moving towards crypto at this very moment, and that’s what our products are designed to serve.”

CoinShares Group is one of the pioneers in the crypto space and was the first in launching an exchange-traded bitcoin product and a regulated hedge fund. The company holds around 69,730 BTC with an AUM worth USD 3.2 billion, accounting for over 0.3 per cent of the total bitcoin supply in circulation. The exchange-traded bitcoin products of CoinShares are traded by the names of Bitcoin Tracker Euro and Tracker One on XBT Provider AB. 

ETC Group’s bitcoin ETF, launched in June 2020, is the world’s first bitcoin exchange-traded product which is centrally cleared. It was launched on Deutsche Börse’s Xetra platform and was listed on the SIX Swiss Exchange in Zurich in January 2021. Just after getting listed on SIX swiss exchange, it recorded a daily trading volume of USD 69.1 million in the same month. 

“…Bitcoin is seen increasingly as a “safe haven” by institutional investors.” – Bradley Duke

The fund currently holds bitcoin worth USD 600 million or around 13,438 BTCs which is physically backed by BTCs that are stored with California’s BitGo trust. ETC Group chief executive and co-founder Bradley Duke made a statement to the Financial Times in January 2021 that bitcoin is seen increasingly as a “safe haven” by institutional investors. 

Canada-based 3iQ is a crypto-asset portfolio manager holding BTCs worth over USD 1 billion or around 23,363 BTCs. 3iQ listed its bitcoin fund in April 2020 on the Toronto Stock Exchange, thus providing regulated access to invest in bitcoin. Also, the name behind a stable coin named QCAD, backed by the Canadian dollar, the regulated BTC fund was listed in September 2020 on  Gibraltar Stock Exchange. Acting as a custodian for the fund is the Winklevoss twins’ exchange Gemini. 

As per a recent survey of wealth managers and institutional investors from the investment manager, it has been revealed that out of 10 exposed to bitcoin, over 8 are already expecting further allocating more resources to BTC in the short-term and 29 per cent expect that corporations using BTC will further increase their exposure in cryptocurrencies for treasury reserves. 

Blackrock, the world’s largest asset management company also recently announced entering the bitcoin space. Blackrock currently holds over USD 8.67 trillion worth of assets under management. Another big player, Guggenheim Partners with USD 300 billion worth of AUM declared investing some of its private holdings in BTC. 

Some of the major other developments in the space are as follows: 

  • Visa allows traditional banking customers to trade bitcoin by piloting its new crypto API and working with crypto exchanges.
  • MasterCard approves accepting select cryptocurrencies on its platform.
  • The largest US banking regulator, US Treasury OCC, granted permission to US banks for using stablecoins for payments.
  • One of the largest crypto exchanges, Coinbase recently filed to become publicly listed which will potentially increase the exposure of institutional investors towards bitcoin, attracting billions of dollars.
  • Paul Tudor Jones, a billionaire institutional investor, and other Wallstreet executives investing in a crypto fund worth USD 73 million. 
  • Ray Dalio, a billionaire institutional investor recently wrote an open letter stating Bridgewater Associates, his asset management firm, would buy bitcoin soon. 
  • As per research, the largest university endowment funds in the U.S. have invested in bitcoin and crypto-assets in 2020. 
  • Rothschild Investment Corporation invested in bitcoin by increasing its stake by 24 per cent (further buying 30,000 shares) in the GrayScale BTC trust.
  • As per a source, Goldman Sachs issues a request for information (RFI) to enter crypto markets by exploring crypto asset custody. 
  • Three Arrow Capital now owns 6 per cent of all GrayScale bitcoin Trust shares, holding about 37,000 bitcoins that are worth over USD 1 billion.
  • Marathon Patent Group also declared purchasing 4,813 BTC worth USD 150 million in January 2021.
  • Miller Value Fund, a multi-billion hedge fund owned by Bill Miller announced exploring investing in the Grayscale Bitcoin Trust through its flagship fund with possible exposure of 15 per cent in bitcoin.
  • Anthony Scaramucci of Skybridge Capital hedge-fund investment firm confirmed entering the crypto space through the launch of its new bitcoin fund, declaring it already being exposed to USD 310 million worth of bitcoins.
  • VanEck, an asset manager with assets worth USD 49 billion under management, filed with SEC to create a new bitcoin Fund.

The crypto industry is thrilled with the price of BTC skyrocketing in the recent past. But, one must note that although Bitcoin is being viewed as an alternate asset class with its wide-scale adoption and being compared to gold as a store of value, uncertainty revolving around regulations and high volatility still exist as hurdles before bitcoin can become a major chunk of investment portfolios in the finance world!

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