The institutional investment curve in bitcoin accelerates

Key facts:

• A third of institutional investors have invested in bitcoin and other cryptocurrencies.

• In Grayscale’s GBTC fund alone, there are over 400,000 BTC.

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Bitcoin is increasing its appeal to institutional investors. There are not only a growing number of companies that dedicate hundreds of millions of dollars to investing in bitcoin, in order to diversify their portfolio. Open interest in bitcoin futures, which are managed by companies such as CME and Bakkt, has also grown in recent months.

Various statements by well-known investors convey a message about bitcoin as an institutional investment vehicle. Hedge fund pioneer Tudor Jones declared in mid-May that it could invest between 1% and 2% of its BVI Global Fund in bitcoin. More important than the percentage of exposure mentioned, was his message about bitcoin as a store of value.

Last June, Fidelity Investments carried out a poll among large institutional investors such as pension funds, hedge funds, family offices, and financial advisers. 36% of the 774 investors interviewed stated that they already have investments in cryptocurrencies, predominantly in bitcoin.

A good example of the institutional interest in bitcoin as an investment instrument can be found in the acquisition of more than 21,454 BTC, by MicroStrategy, a company dedicated to business intelligence software, which represented an investment of USD 250 million.

MicroStrategy CEO Michael J. Saylor said in a press release on Wednesday, August 12, that investing in bitcoin seeks to “maximize long-term shareholder value.”

This investment reflects our belief that Bitcoin, as the most widely adopted cryptocurrency, is a trusted store of value with greater potential for long-term appreciation than cash.

Michael J. Saylor, CEO of MicroStrategy.

The executives of this firm have analyzed in recent months the best way to use available cash for efficient investment, Saylor said. The current economic and business outlook, according to the firm’s analysis, has created long-term risks.

Among the risk factors considered by MicroStrategy there are the economic and public health crisis precipitated by Covid-19, the unprecedented measures of financial stimulus around the world, and the global political and economic uncertainty.

This investment in bitcoin represents an important support to the main cryptocurrency in its role as store of value, for institutional investors. MicroStrategy refers to “persuasive evidence of its superiority … for those seeking a long-range store of value.”

A fund focused on bitcoin

On the other hand, the growth of the interest of institutional investors is evidenced in the reports delivered by Grayscale to the Securities and Exchange Commission (SEC) to notify the operations of its bitcoin fund, GBTC.

In his last report 2019-2020, an increase in institutional investment in bitcoin is reflected, specifically in the GBTC fund, from USD 1,866 million at the end of 2019 to USD 3,532 million at the end of the first half of this year. That is, there was an increase in investment in bitcoin of USD 1.6 billion in six months.

In other words, Considering only this financial instrument, the amount of institutional investment reported to the SEC increased 89.1%. In BTC, as of December 2019, Grayscale reported having shares in the GBTC fund equivalent to 261,192 BTC, while at the end of the first half of 2020, shares of investment companies were reflected in the fund equivalent to 386,723 BTC.

Since June 30, investments in the GBTC fund have increased, according to a Grayscale ad on Twitter held last Wednesday, August 5. The GBTC now accumulates USD 4,536 million in that bitcoin fund and the total raised by the cryptocurrency funds of the manager reached USD 5,500 million. Grayscale would then be handling at least 400,000 BTC, considering a price of $ 11,500 per BTC.

Investor Profile in GBTC

Separately from the reports delivered by Grayscale to the SEC on the global operations of the bitcoin fund, companies that invest in that fund can also introduce a notification to said regulator about their investments.

So far, some 27 institutional investment managers have filed 13F forms with the SEC, detailing the shares acquired in that fund, their average price, and the return on that investment. The fintel.io portal reveals some aspects of those institutional investments.

There is a wide range, from investors with 273 shares to one with 3.6 million. Each share has $ 10.92 in BTC, although the market price of each share is $ 13.11 (20% premium).

The range of investments goes from USD 3,618 to USD 48.4 million in this group. Those who invest in this fund can trade their shares on the secondary market.

Bitcoin in futures

Companies such as Bakkt or CME have also seen significant growth in the so-called open interest, which is the value of futures contracts that are pending settlement.

In the case of Bakkt, the closing of July represented all-time highs as the futures platform reported the highest number of settled contracts, which reached 11,506 contracts on July 28, and 11,706 contracts on July 29. That last day, the total liquidated value exceeded 125 million dollars. This corresponds to a volume of about 11,000 BTC for such contracts.

CME handles much higher numbers. Although CME contracts are not settled physically, in February this year, this exchange dedicated to futures settled contracts for almost 1 million BTC, according to figures from acuity.io.

The BTC managed by the aforementioned investors, 2,232 million represents a little more than a tenth of the current supply of Bitcoin, approximately, taking into account that the supply at the time of this writing is 18.46 million BTC.

However, it must be taken into account that a large part of that volume, especially that of bitcoin futures, cannot be accounted for as being effectively in the hands of institutional investors, since a part of it is not physically settled. Even so, it is part of a volume that is traded monthly, within the required liquidity of the derivatives exchange houses.

If it is clear, however, the growing interest of institutional investors in bitcoin. At the current moment, with a bullish sign, it is an important factor that differentiates the current market of this cryptocurrency, with respect to the market in the bubble at the end of 2017. At that time there were more speculative elements, while today the external factors, linked to macroeconomics, add to greater confidence in the sustainability of Bitcoin.

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