In the second half of 2020 institutional investors began to show increasing interest in bitcoin. More and more investors have announced that they have allocated some or part of their cash reserves their fund towards bitcoin.

The most prominent has certainly been Michael Saylor with his company MicroStrategy with 70,470 bitcoin as of now. Another important development has been MassMutual Life Insurance Company is converting part of its fund into bitcoin. The latter example, in particular, has given bitcoin much more legitimacy as an institutional investment vehicle. An insurance company that deems bitcoin safe enough to invest in is a game changer as this industry is usually known for its very conservative investment strategies.

The influx of institutional money appears to have become a self-reinforcing mechanism. Grayscale Bitcoin Trust alone has increased its bitcoin holdings by more than 66 percent, from 365,090 on June 9, 2020 to 607,270 bitcoin on December 28, 2020, per In an appearance on CNBC’s “Squawk Box”, Michael Sonnenshein, Grayscale’s general manager, said it is seeing an inflow six times that of last year on its platform and that the type of investors has changed. Some of the largest investors are now investing with Grayscale and these investors hold bitcoin for the medium to long term.

While a knock-on effect for institutional investors can be observed, what is the underlined push for it? Why do these investors see the need to convert some of their capital into bitcoin? Saylor often talks about the need to convert a company’s cash reserves into bitcoin to protect its balance sheet from the diminishing value in fiat currencies, and particularly the U.S. dollar (USD) which has fallen against other currencies this year (as later in this article will be demonstrated).

In a previous articleI have found that Google searches in USD are strongly linked to bitcoin searches and I have the hypothesis that the impact of the dollar’s devaluation is felt more directly by people and that it leads to an increase in bitcoin purchases.

The USD has generally lost value against other major currencies. This can be seen in the USD index (DXY), which contains a basket of the following six exchange rates: EURUSD, USDJPY, GBPUSD, USDCAD, USDSEK and USDCHF.

One possible reason for this is the unprecedented monetary expansion by the Federal Reserve Bank. However, not only did the Fed expand its balance sheet this year – central banks like the European Central Bank (ECB) did too, and there are other factors at play as well, which is why it makes sense to look at the DXY, which has been affected due to all these factors. Changes in the world’s monetary landscape are also an essential factor, as outlined in the excellent article “Weakening the US Global Currency Reserve System.By Lyn Alden. Therefore, it makes sense to look at the DXY development against the bitcoin price.

Before looking at the relationship between the USD index and bitcoin price, let’s take a look at the Fed’s balance sheet and bitcoin price. This relationship is shown in Figure 1.

Figure 1: Daily bitcoin price in USD (source: (January 1, 2020 to April 24, 2020) and weekly Fed balance (source: St. Louis FRED) (January 1, 2020 to December 23, 2020)

The bitcoin price and the size of the Fed balance sheet seem to be somewhat interrelated. However, the price does not directly follow the expansion of the balance sheet during the first half of the year.

This can also be seen in the correlation coefficients in table 1. Over the entire period, both variables are correlated with 47.65 percent, while it is only 6.20 percent in the first half of the year and increased sharply in the second half. of the year. up to 86.41 percent. A similar picture emerges for the money supply M1 and M2 about this year.

While M1 is up more than 65 percent, M2 is up nearly 26 percent. The relationship between the monetary variables and bitcoin price seems to exist, but doesn’t seem to be as strong as with the DXY.

Table 1: Correlation Coefficients of Bitcoin Price and Selected Variables

Throughout the year, the value of the DXY shows a strong negative correlation with the bitcoin price (see Table 1). It is much higher compared to the other two variables. This makes sense when we consider that the US dollar has lost value against other currencies not only as a result of monetary policy, but also as a result of other mechanisms at play. That is why the declining value of the USD against other currencies seems to be the more relevant variable.

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Looking at Figure 2, the DXY tracks bitcoin price surprisingly well. This appears to be especially the case in the second half of the year after the DXY fell below 95 on July 22, 2020. This also appears to coincide with an increase in institutional interest in July and August. Interestingly, the DXY appears to have a positive relationship with the bitcoin price during the first half of the year, where the DXY was predominantly between 95 and 100.

However, looking at the correlation, it was already negative in the first half of the year (-0.4015). This only got stronger in the second half, with a coefficient of -0.8253. While the dollar value hadn’t been all that important in the first half of the year, the value breakdown seemed to have pushed investors over the edge, increasing its relevance to bitcoin price.

Figure 2: Dollar index (Source: and bitcoin price in USD (source: (January 1, 2020 to December 30, 2020)

Although the above relationships are only correlations, the relationship nevertheless appears to be strong and, as a narrative, appears to be an essential motor of institutional importance. Regardless of what you think about which of these variables institutions are effectively pushing into bitcoin, monetary policy and the declining value of fiat currencies seem to be at the forefront.

It appears that the loose monetary conditions will continue and, as Alden explains in the aforementioned article, the trend of the USD’s declining value against other currencies is likely to continue in the future. With the USD’s bearish outlook against other currencies, the devaluation of currencies against hard assets, an unprecedented monetary intervention that appears to be here and the knock-on effect at play, we expect more and more institutional investors will do FOMO in bitcoin in 2021. this is bullish for bitcoin.

This is a guest post by Jan Wuestenfeld. The views expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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