[Insight] Institutional Investors at the Center of Bitcoin in 2020
Tags: Institutional Investor, Bithumb, 2020, Bitcoin, Insight

The price of Bitcoin is showing unusual trends in 2020. Bitcoin, which was only worth KRW 8,312,000 on December 31, 2019, has now risen to KRW 21,315,000 on November 30, 2020, recording the highest peak in the year. It even exceeded the highest recorded price in some of the exchanges. Even in December, Bitcoin’s price is currently remaining stable around KRW 20 million, continuing its uptrend. In 2020, Bitcoin was at the center of the market’s attention. And at the very heart of Bitcoin, lies institutional investors.

First Institutional Investors Entering the Market, Starting with Futures Market… How Were They in 2020?

The first sign that has shown institutional investors have entered the Bitcoin market, was the Chicago Mercantile Exchange’s (CME) enlisting of Bitcoin futures in 2017. The CME is considered as one of the world’s largest future exchange working within the formal sector. And due to this news, Bitcoin experienced a rapid rise for a short period in 2017.

But after its launch, however, the trade volume of CME’s Bitcoin futures was low. And at the first half of 2020, CME’s Bitcoin trade volume was far below the level of other future service providers in the business, such as BitMEX, OKEx, and Binance.

However, in the second half of 2020, the trade volume has been increasing rapidly, and in November, the number of daily open interest recorded the largest volume in the world, showing a vertical shoot up. It is known from the past that the main source of demand for CME’s Bitcoin Futures was from the institutional investors within the boundary of formal sectors. Such a status quo can be interpreted that the entry of the institutional investors is becoming more regularized, unlike 3 years ago.

Square, Microstrategy, and Paypal… And Other Global Operators are Also Joining In

Meanwhile, firms within the formal sector that are making official mentioning about Bitcoin investments or services have begun to show up. Square, the mobile payment service firm that is also well known as another company belongs to Jack Dorsey, the CEO of Twitter. Square announced that they have purchased around 4700 Bitcoins in October of this year alone. They have already spoken that 80% of the performance in the 3rd quarter came from Bitcoin. Furthermore, in August, Microstrategy, a Software company enlisted on NASDAQ, has drawn the attention of the market by purchasing 38,250 Bitcoin in bulk. Also, in December, they made a further purchase of 2,574 Bitcoin, increasing their total holding amount to 40,824 Bitcoin. Due to this, the stock price of Microstrategy risen from USD 150 in September to USD 328 on December 7 (KST).

Plus, in October, Paypal, one of the world’s largest e-payment service platforms, heated up the market by announcing that they are planning to “make consumers pay in Bitcoin possible in 26 million merchants from next year.” In addition to that, news of the continuous Bitcoin purchase by Grayscale, a company running a digital asset trust fund, and indirect Bitcoin investment made by Guggenheim Partners, a global investment firm, came in a row. So, it is now safe to say that the main topic of Bitcoin this year is ‘the entry of institutional investors.’

In Korea, there are traditional institutions that are planning for entering the digital asset market when details related to regulation becomes clearer. As for the services like digital asset custody, which is expected to have low risk from the regulation, banks are already on the verge of entry. So, if only the rules can be set quickly, it seems possible to see the entry by such institutions becomes real in Korea as well.

Legendary Figures in Financial Business Talking About Bitcoin

Unlike 3 years ago, one of the reasons that many of the public are considering Bitcoin in a different view is that Legends in financial fields are talking favorably for Bitcoin. For instance, Paul Tudor Jones II, the founder of Tudor Investment Corporation, said, “Bitcoin is like gold in the 1970s. It has just entered the first course of the long-term upward rally.” Jim Simons, chairman of a global hedge fund, Renaissance Technologies, also said that he has started to invest in Bitcoin since March. And in December, Larry Fink, the CEO of the world’s largest money management company, BlackRock, drew the attention by saying, “It is possible for Bitcoin to evolve into a global asset.” in a meeting with Mark Carney, the former president of Bank of England (BOE). BlackRock is a mega enterprise managing assets worth over USD 7 trillion and 800 billion. If a CEO from such a company is showing a hospitable attitude towards Bitcoin, it is obvious that the public will also view Bitcoin from a different perspective. So, these are the reasons for the increase in search amount for Bitcoin in a recent Google trend.

Other large firms are also showing positive opinions for Bitcoin. In November, JPMorgan said, “While the cash flow of Grayscale Bitcoin Trust recorded a net inflow in October, there were some outflow for Exchange Traded Fund (ETF) since the mid-October,” and analyzed that there is more demand for Bitcoin, which is called as ‘digital gold,’ than actual gold.

Meanwhile, CitiBank N.A. forecasted that the price of Bitcoin may rise to USD 318,000 in 2021 in a report named ‘Bitcoin, Gold of 21st Century.’ This caused quite a sensation because it is a very rare occasion for formal sectors to suggest such an extraordinary amount for the Bitcoin’s future price. Also, in December, analysts of Blumberg estimated that “It is possible for Bitcoin to rise more than double in 2021.” The positive evaluations for Bitcoin’s future by the institutions are still in progress. This will be an end of the year, full of expectation for what move these institutions will show next year.