December 3, 2020

Bitcoin's Bull Run

As Bitcoin nears to its all-time high, a wide cast of institutional investors are beginning to pay attention.
4 min

As Bitcoin nears to its all-time high, a wide cast of institutional investors are beginning to pay attention.

Bitcoin's rally has punctured the US$19,000 mark, reaching three-year highs and briefly touching its December 2017 record high of US$19,783. While institutional and traditional investment (from the likes of Paypal and Square) and the perception of Bitcoin as a hedge against inflation is no doubt a factor behind Bitcoins surge, it appears that Wall Street and Main street interest is stoking a new wave of demand. Of course, the attention and participation of high-profile investors is a feedback loop which in turn creates more attention and so on - a dynamic that continues to fuel Bitcoin’s mainstream adoption.

Jack Dorsey - CEO of Twitter and Square.

Bitcoin's price hike has sparked a wide range of high-profile figures to weigh in on the Cryptocurrency - signs that Bitcoin is reaching more buyers with deeper pockets.

Rick Rieder, Managing Director and Head of the Global Allocation Investment Team at BlackRock, claims that Bitcoin is ‘here to stay’. His reasoning being that Bitcoin and digital payments, in general, resonate with millennials’ values and aligns with the social shift toward digitization. He also commented that Bitcoin has the potential to ‘replace gold to a large extent’ given its functionality as a means of trade. JP Morgan, in a note  published last week, largely echoes Reider’s sentiment, acknowledging that Bitcoin has considerable upside in the long term as it competes with gold as an alternative store of value. This is due in no small part to millennials becoming more relevant in the investors sphere. As more economic agents look favourably towards Bitcoin and cryptocurrency in general - a trend that is unlikely to decline - the higher its utility and value becomes.

Former Goldman Sachs hedge fund manager Raoul Pal, has predicted that a wall of institutional investment is lining up to purchase Bitcoin over the next five years as the digital asset is being increasingly seen as a medium for long-term investment and portfolio allocation. According to Pal, large scale companies are shifting their cash reserves to Bitcoin instead of holding less secure assets that are exposed to inflationary central bank tactics. His opinion has been reflected in market moves over the past few months where we have seen companies like MicroStrategy, a NASDAQ listed intelligence firm, acquire an additional 16,796 bitcoins in September bringing their total investment in Bitcoin to US$425 million. Five days after, payments company Square purchased 4,709 bitcoins - a $50 million investment that represented around 1% of the company’s total assets at the end of Q2 2020 - Stone Ridge Holdings disclosed that it had $114 million worth of bitcoin as part of its treasury reserve strategy.

Managing Director of GreyScale Investments, the world's largest crypto fund, acknowledged that continued mainstream involvement is validating the staying power of the asset class. Michael Sonnenshein, who oversees almost $US11 billion in crypto assets, established the reasons behind the surge in Bitcoin investment in an interview with Business insider:

“Buying Bitcoin is meant to be a store of value, inflation hedge, a digital gold, a digital form of money that is much better suited to the digital world we live in today versus historical stores of value like gold which would have been certainly much more applicable to a world characterised by physical exchanges. They view it as one of the most important next steps in the evolution of money and what constitutes a store of value.”

The driver behind Bitcoin’s bull run may very well be due to new demand spurred on by mainstream adoption. While Bitcoin was born outside of the traditional financial services realm, the reasons behind its creation - as a hedge against currency devaluation - has resonated with conventional financial institutions. This is especially true now as governments are being forced to inject money into the economy to combat coronavirus shutdowns. Throughout the year, many have sought financial refuge in Bitcoin and other cryptocurrencies, including a flurry of high profile acquisitions. This institutional flow may very well bring Bitcoin into uncharted territory as it nears the US$20,000 price point. For now, we will have to wait and see.