Without a doubt, Bitcoin (BTC) has become an increasingly popular item holdings among institutional investors. By the end of the second quarter of 2020, Fidelity reported this in a survey of nearly 800 institutional investors 36% owned crypto assets. A separate survey conducted by crypto wealth insurer Evertas shared that respondents think hedge funds will drastically increase their crypto holdings. It too projected that 90% of institutional holders of crypto assets expect to invest even more in Bitcoin in the coming year.
From MicroStrategy and Grayscale to JPMorgan and Goldman Sachs, Bitcoin has solidified its place in investment portfolios as the asset as a hedge against inflation and currency devaluation. Beyond that, however, there are real technical reasons why institutional investors are getting more and more optimistic about Bitcoin, with some predict it will reach $ 1 million by 2025.
While the future value of Bitcoin may remain a topic of debate, the reality is that investors and financial institutions now to believe “Holding BTC may turn out to be less risky than no exposure to Bitcoin at all.” In fact, according to a crypto research firm Messari, more than 81,000 BTC belong to “the treasury of listed companies.”
In total, 81,154 BTC, or 0.5% of all BTC in circulation, is held in the treasury of listed companies.
– Messari (@MessariCrypto) November 11, 2020
But what spurred the 2020 Bitcoin rally, and what are institutional investors seeing in Bitcoin now that they haven’t seen it before?
Bitcoin’s boundless network and blockchain technology
Bitcoin acts as a non-sovereign currency that is not correlated with 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 key areas where Bitcoin and blockchain technologies provide 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, limitless payments, lower fees and faster, more secure transactions, are the catalyst that will prepare us for a future where national currencies break from their current physical form and become digitized.
With US dollar inflation on the horizon, notable investors are loving Ray Dalio and Paul Tudor Jones are also beginning to “love Bitcoin more and more” and have identified it as the “best inflation hedge”, compared 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 the new business blockchain and digital currency house Onyx, we’ll continue to see institutions increase their presence in space.
The introduction of quality storage solutions
Custodians are used by financial institutions such as hedge funds and mutual funds, which are required to hold client assets with a professional custodian 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 severely lacking in institutional-grade cryptocurrency custody solutions. With an urgent need for adequate custodians to safeguard the growing amount of crypto assets and an increase in clarity on regulatory guidelines for operating and investing in cryptocurrencies, a sector of institutional custody solutions was born.
Anchorage, a newly launched crypto custodian backed by Andreessen Horowitz and a number of other prominent blockchain-focused venture capital firms, is one of those solutions. It was incorporated with the ethos of providing a crypto-native custodian of digital assets for institutional investors. Bank Frick, a Liechtenstein-based private bank, has made it a priority to offer a range of blockchain banking services, including support for token launches, crypto trading and digital asset custody. The regulated bank’s services are aimed at professional market participants and financial intermediaries in Europe.
Banks have also been given the green light to hold crypto companies. In a note to the public, senior deputy auditor and senior adviser to the US Office of the Comptroller of the Currency Jonathan Gould wrote back in July:
“We conclude that a national bank can provide these cryptocurrency custody services on behalf of clients, including by owning the unique cryptographic keys associated with cryptocurrency.”
This marked a significant development across the industry that allowed regulated financial institutions to keep the same custody services that were previously exclusively in the hands of specialist companies.
Bank custody options coupled with the rise of crypto insurance companies such as Paragon International Insurance Brokers, which was recently integrated in Bitstamps offers, provide policies for digital assets such as Bitcoin that must be protected both online and offline while covering a number of crime-related circumstances.
The regulatory and custody solutions adopted provide security to institutional investors who may otherwise have been skeptical. They also help keep cryptocurrency exchanges at a higher level and encourage them to protect investors’ money from theft or misappropriation. This has become an important catalyst for making digital assets more attractive to institutional investors and funds.
Institutional demand for Bitcoin
As the crypto market sees a revival in institutional investment, with major purchases being completed by more and more companies, this has been correlated with a rally in the markets.
According to a report by cryptocurrency derivatives platform Zubr, institutional investors are on the way to to hold Bitcoin in “physical” form rather than cash-settled futures. The integration of institutional investors into the crypto ecosystem and their interest in participating is a positive sign of mainstream adoption. The similarities these investors share with the holders indicate an easy transition from traditional finance to the digital economy, instilling confidence in Bitcoin and representing an understanding and belief in the technology.
The high potential associated with decentralized financing, which has introduced a stream of new business streams, products and services, also applies to both parties. Maker and Compound services enable individuals to take out loans of any size in minutes without disclosing their identity to a third party, while the proceeds from new DeFi products result in gains in excess of savings accounts, certificates of deposit and other traditional options.
The potential benefits of the DeFi revolution are just one more reason why the dynamics of cryptocurrency are shifting towards what believers have always wanted: a digitized, limitless possession.
The proof is in the numbers as institutional investors come for crypto
According to a recent survey by Fidelity Asset Management, 80% of institutions surveyed find investing in digital assets attractive, while the number of Bitcoin addresses has steadily increased. Also have addresses with more than 1,000 and 10,000 Bitcoins increased considerably. Coupled with falling stock market balances, this suggests that whales and larger investors are choosing to hold Bitcoin.
In addition, a report from Big Four accountants firm KPMG found it that major banks, asset managers and qualified custodians are launching a new wave of institutional crypto products and services. The institutional investments in cryptocurrency confirm confidence in the digital asset from a significant position of power.
This article does not contain investment advice or recommendations. Every investment and trade move carries risks, readers should do their own research when making a decision.
The views, thoughts and opinions expressed here are the sole ones of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Paolo Ardoino joined Bitfinex in early 2015 and is now Chief Technology Officer. After graduating from Computer Science University in Genoa in 2008, he started working as a researcher for a military project focused on high availability, self-healing networks and cryptography. Interested in finance, Paolo started developing finance related applications in 2010 and founded Fincluster at the end of 2013.