Institutional players like hedgefunds, banks, and even listed companies like Square (NYSE:SQ) and MicroStrategy (NASDAQ:MSTR) are buying Bitcoins. I shared my views on this phenomenon in this short video (written summary below):
Covid-19 has negatively affect the economy. We saw a crash back in May 2020, which recovered rather quickly. This was partially due to the money printing policies by central banks and governments around the world.
Noting this phenomenon, macro investor Paul Tudor Jones wrote a letter in May 2020 slamming the money printing measures and announcing that he is buying Bitcoin as a hedge against inflation.
Since then, other institutional players have started buying bitcoin as well. Here are some key events:
Why are Institutional Players switching their attention to Bitcoin?
In Aug 2020, MicroStrategy announced that they have purchased $250M worth of Bitcoin, stating that it is “superior to cash”. In his various interviews, MicroStrategy’s CEO Michael Saylor has pinpoint three very strong arguments for Bitcoin:
1 – Good Hedge against QE Infinity
Referring to the impact of the Fed’s loose QE plans, Saylor compared the state of MicroStrategy’s treasury to “a block of melting ice”.
“The purchasing power of cash is debasing rapidly. What we’re trying to do is preserve our treasury.”
Previously, they had used short term treasury bonds to manage the value of their treasury. However, over the years the returns of treasury bonds have depleted.
If you know how painful it is to watch your portfolio value fall, imagine that multiplied a hundred folds.
We can only imagine the pain MicroStrategy’s finance team had to deal with, watching the value of their treasury (worth ~US$500M) drop over the years.
2 – Bitcoin is still the leader among all the choices of cryptocurrencies available.
“We find the global acceptance, brand recognition, ecosystem vitality, network dominance, architectural resilience, technical utility and community ethos of Bitcoin to be persuasive evidence of its superiority as an asset class for those seeking a long term store of value.”Saylor
Basically, Saylor believes that Bitcoin has been proven over the years.
It has been around for 11 years and have survived many forks in the systems. Bitcoin, being the first major cryptocurrency has a significant amount of computing power backing it, creating a resilient network dominance as well as providing a vital ecosystem.
Most importantly, people have heard of it, even if they don’t invest or use it. This brand recognition could lead to a higher rate of adoption once cryptocurrencies becomes more widely accepted.
It also creates a ‘moat’ because although the underlying blockchain technology is easily replicable (i.e. we see new coins being launched rather frequently), the level of trust and acceptance that Bitcoin has today is difficult for new entrants to replicate.
3 – Gold is old school and uninventive
“Not a good bet to bet against ingenuity and assume that people will be lazy and ignorant for the next decade, because its not likely.”Saylor
Saylor believes that gold is outdated, uninventive and that investors buy it as a habitual store of value. However, he opines that investors will likely dump it for a more superior store of value in the future, especially since technology and the economy is evolving rapidly.
In fact, we are starting to experience a shift towards bitcoin from gold today due to the advantages it presents.
Saylor was a hater
Although Saylor may sound optimistic to you, its important to note that he had doubts on Bitcoin in the earlier days:
Back in 2013, he was adamant that that Bitcoin was just a passing trend. Fast forward today, his company are shifting a significant amount of their treasury value into Bitcoin.
This is a telling sign that investors and the professionals are starting to see the Bitcoin adoption:
What does this mean for us?
It’s interesting to know that institutional investors are starting to recognise Bitcoin.
But so what?
What does that mean for individual investors like us?
Well, for one, this acceptance and shift in stance towards having Bitcoins in their portfolio suggests that we are one step closer to the mainstream adoption of Cryptocurrencies.
Investments aside, in Oct 2020 Paypal announced that they will be supporting cryptocurrency payments and allowing exchanges between cryptocurrency and fiat currency on their platform, from as early as 2021. On 13 Nov, they announced that they have removed the waitlist and that all U.S. users are able to buy, sell and hold cryptocurrencies on their platform.
Again, this move suggests that they are bullish on the mainstream adoption of cryptocurrency. They are putting the structure in place for consumers to transact on both fiat and cryptocurrency.
It has taken Bitcoin 11 years to come so close to mass adoption. And I believe this is just the start.
Since 2016, I’ve been investing and teaching my students all about Bitcoin and Cryptocurrency investing. Although the cryptocurrency scene has grown tremendously over the years, there are still pitfalls and potential frauds aimed especially at newbies. I share all these and more at my Cryptocurrency Masterclass, join me at the next session.