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How Much Institutional Money Is In Bitcoin?

Bitcoin

September 15, 2020 | 

JOHN K MWANIKI |  0 Comments| 

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The Bitcoin price movement has been ever impressive. It is always on a downward spiral or rises depending on the market forces. The coin has been unique, reaching the highest of $20k in 2018. 

What's been missing, though, is the presence of institutional investors

Every other person would consider the coin an ideal investment. It has proven to be resilient even in adverse economic conditions. Its developments have seen some traders refer to it as digital gold. 

While the coin has been on the run, the big money investors have been missing. If the Bitcoin is ever to get mainstream, then the institutional traders must embrace it. 

Follow through for current state of the institutional investments on Bitcoin; 

The Rise of Institutional Investors in Bitcoin 

The institutional investors have had challenges joining the blockchain.  Most of them have charters that don't allow investments on cryptocurrencies. The charters only enable them to buy any other common stocks. 

The state of the market, however, has changed in recent times. Thanks to the entry of the SEC-registered, closed-end fund, Grayscale Bitcoin Trust. It changes everything for institutional investors and Bitcoin. 

The Grayscale trades shares over the counter. This allows anyone to participate in trading Bitcoin. Institutional investors inclusive. 

Grayscale has grown considerably in recent times. Earlier in the year, it announced raising $607 million in 2019. Of this amount, $193 million was traded in the last quarter of 2019. 

There is also the surge of the new investors joining the trust. Of all the transactions, 24% were from new investors. 

Institutional investors occupy Grayscale's most significant portfolio. The investors like traditional hedge funds and endowments form 71% of the company. It means a rise in Bitcoin participation by Grayscale is the institutional investors' impact. 

The Effect of Institutional Money on Bitcoin Price 

The value of Bitcoin follows the rules of demand and supply. An increase in need with the same supply means the coin value goes higher. Institutional investors are the owners of big money. Their entry into the Bitcoin market is excellent for its value. 

The expectations of the institutional investors alone can push the value of the coin. For example, some traders site the meteoric rise of Bitcoin from $1000 to $20000 in 2017. They claim it was due to expected institutional money into the crypto world. 

The world's most prominent investors, however, did not join the fray. They kept on treating the coin with scepticism. This saw the fall of the digital currency in the following years. 

With Grayscale making it easier for the more prominent companies to trade, it will have an impact. Reports have revealed more than 20 investors are willing to join Grayscale trading. They are looking to own Bitcoin through the Trust fund. Top of these companies is ARK Investment Management $20,226,000 in GBTC.

Bitcoin's value has been on a bull for the better part of the year. It has grown by more than 56% from January to hit the rates of $12k. It currently has slipped slightly to trade at $10,089. The growth has coincided with that of Grayscale portfolio. 

Grayscale currently grows at the rates of $57.8 million per week. It has totalled a value of more than $751.1 million in one quarter.  Its assets in GBTC surpasses $4.5 billion. It will experience more growth as newer companies join the fold. These will, in turn, have a positive impact on Bitcoin's value. 

The Reasons for Institutional Money Entry 

So far, it seems like the entry of Grayscale explains the access of institutional investors to crypto. However, there is more at play. One of the reasons for such developments is the entry of bitcoin derivatives

Most of the institutional investors are wary of Bitcoin's volatility. They would not want to risk public money in unassured assets. That is where the derivatives come in. The derivatives allow the investors to trade in the asset without the accompanying risks. 

Some of the most popular bitcoin derivatives are the futures, perpetual futures, and options. The new entrant is Bitcoin-Gold. 

The derivatives attract these investors due to reasons like;

  • Regulation – Unlike Bitcoin cryptocurrency, the derivatives are highly regulated. They are traded in only SEC-regulated exchanges. They operate almost similar to traditional stocks. 

  • Trust – Bitcoin is still a new asset. There is still no consensus on whether it will become an alternative to the fiat currency. No big money investor wants to risk their money in such. The derivatives, however, are traded in trusted indexes. The indexes analyze the different currencies and only provide the most reliable.  

  • Stability – Volatility is a major to opt-out of the cryptos. The value of the assets change so much it is tiring to keep up. Institutional investors, however, want assured return on investments. Most of the derivatives offer.

Bitcoin, for example, allows traders to choose a future where they will sell an asset at a specific price. It means, whatever happens, their value is assured. Bitcoin perpetual futures, on the other hand, allows one the liberty to sell or hold at that future date. 

Bottom Line 

The institutional investors have been a factor in Bitcoin value for some time. The prospects of them joining the crypto world in itself affects the prices. Still, they have had sidelined the crypto for the longest time. This was mostly due to the several charter restrictions and volatility of cryptos

The entry of the Grayscale Bitcoin Trust has, however, changed the scope of trade. By allowing the over-the-counter purchase of shares, the investors get to trade in Bitcoin. The results have been massive so far. Both the coin's and Grayscale's values have been improving.

More companies are expressing a desire to join Grayscale. It means the future of Bitcoin investment by institutional traders is set to rise further. 

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