Has Institutional Money Been in Bitcoin All Along?
By: Jim Bone
Tags: Cryptocurrency, Bitcoin Mining, Bitcoin News, Institutional Investor, Bitcoin

Has Institutional Money Been In Bitcoin All Along?

Going back to at least 2017, there has been an ever-increasing amount of rhetoric and speculation over the question of so-called “institutional money” flowing into Bitcoin: When will it happen? Under what conditions will it happen? Is it happening now? How much or how little is it happening?

The more these various questions get asked in different terms, and likewise the more attempts being made to answer these questions also in different terms, it seems that more and more questions are actually raised instead of there being less and less questions to answer.

Even now there are those who would argue that institutional money is finally flowing into Bitcoin, whether to suggest it’s just a trickle or a flood of money coming in. Then there are those who at the same time will argue the day hasn’t quite arrived yet, but that certain alleged empirical evidence supports it’s coming soon enough. Still others claim it’s still not here and that there’s no real indication it’s ever going to come.

There is, of course, money from institutions being funneled into different byproducts of Bitcoin, such as with the Grayscale Bitcoin Investment Trust (GBTC) fund; the Amplify Transformational Data Sharing (BLOK) fund (which is a real mouthful if you ask me); and the Bitwise 10 Private Index Fund. These various types and flavors of investment vehicles allow investors to invest in Bitcoin indirectly through such conceived ideals as options that are based on indexes.

The GBTC one in particular actually creates its own “shares” in the fund that are then traded in the name of Bitcoin among investors who buy those shares. The idea here is that GBTC itself holds an estimated 285,000 Bitcoins (or 1.57% of all BTC) somewhere in a cold storage wallet. Let’s just hope they aren’t storing it on a Coinomi Android wallet, or even on that new stand-alone Coinbase Android wallet thing that Coinbase created (simply called “WALLET”), right?!!

Maybe Grayscale has all 285,000 of them stored on a paper wallet that you can generate straight off from the BITCOINPAPERWALLET.COM website. Those are not unsafe wallets, I can tell you by the way, at least in my opinion. I’ve used them extensively with never an issue. (Just don’t lose the private key.)

But the point is that, based on the best information I can gather anyway, nobody really knows for sure where all these suggested 285,000 Bitcoins are allegedly being stored at. Maybe they’re being stored in that fancy new deep-freeze vault that was built by the XAPO Company and stuffed into the middle of a 40,000-year-old glacier somewhere in the Swiss Alps. I guess that would be safe enough.

However, another point is that apparently all these Bitcoins held by GBTC are said to “never move” from wherever they are being parked. So these folks are not involved in day-trading Bitcoins, you know, like with cross-trading for Ethereum, Dogecoin, or whatever on the open market. They are just collecting more and more Bitcoins and then hoarding them.

So is it fair to refer to GBTC as an “institutional investor” of Bitcoin? Well, yes and no, I guess. I mean the organization is an institution in the strictest legal sense of the word, but I gather they must be buying all their Bitcoins from someone else who was hoarding them in the first place. I mean, Bitcoin doesn’t grow on trees (or does it?) and first you have to mine it before you can hoard it.

As well, the money being used by GBTC to continue buying more and more Bitcoins is actually coming from institutional investors (like banks or whatever) on the one hand, but on the other hand these institutions again are NOT buying actual Bitcoin itself from GBTC and are instead buying “shares” of the GBTC fund.

So wait a minute! Doesn’t that sound familiar? Just think — “ERC20 tokens” on the Ethereum blockchain that are said to be worth their weight in actual Ethereum. So if I spend maybe 10 or 15 minutes at most creating my very own ERC20 token through any one of a number of different online tools that will just about do the job for me with my eyes closed, then I can “fund” the token (or “stake” it as they now say) with actual Ethereum. And for all practical purposes, at least in principle function, there is no fundamental difference between doing that with an ERC20 token respective of Ethereum comparative to what the GBTC fund is doing with its “shares” respective of its giant stash of Bitcoins.

Okay, so here’s partly where I’m going with this: One question to ask, which may seem too obvious to even consider it, is to seek to define what “institutional investor” really means. So what does it mean?

Is an institution a publicly traded company listed on the NYSE or NASDAQ? Is it a privately-owned bank, private equity firm, or private real estate holding company issuing privately-held stock shares not really removed from those aforementioned GBTC shares? Is it pot farm somewhere in the State of Oregon growing weed and then selling it to dispensaries far and wide? Or is an institution no more and no less than potentially even some homeless person who happens to own a smartphone and creates an ERC20 token on the TOKENMAKER.ORG website using a free McDonald’s WIFI connection?

The thing is, of course, that at the end of the day, “money is money” no matter where it’s coming from. If it’s coming out of my pocket, your pocket, or any pocket by any shape, size or description, it’s still just money.

So this is where we get into the worrisome question of defining the “role” of how the appropriation of money relates to Bitcoin both directly and indirectly, which is notably respective of whomever shall buy and hold actual Bitcoin (and not buying “shares” of a Bitcoin fund), and thus translates into defining the scope of what “institutional money” can be said to be in terms.

If we take the Coinbase Company as an example of a cryptocurrency exchange that now offers both custodial solutions, as well as an institutional-grade investment platform, it appears anyway that a decent sum of institutional money is indeed being funneled into the crypto market. As of August 2019, it was reported that Coinbase is seeing fresh cash infusions of institutional money being poured in to the tune of between $200 & $400 million per week. That’s a decent sum of institutional money already.

Is all that money being pumped into the Coinbase coffers going directly into Bitcoin? Certainly not. And who knows what the percentage allocation is that’s being made to buy the different flavors of crypto offered on Coinbase, but it doesn’t really seem to make any difference how the money is being spent.

After all, not only can any given crypto coin be exchanged for any other crypto coin at the drop of a hat, but it’s no real secret that Bitcoin specifically is seen to remain as the sure catalyst marker for the entire cryptocurrency market in terms of not only available liquidity, but also in view of the fact that the broader market moves in direct correlation to the price of Bitcoin at any given time and not against it. So with the best assumption being made that the value of every other crypto asset is intrinsically tied to the value of Bitcoin, then it sure looks like it all amounts to just one giant pool of money all going for the same cause and purpose.

In terms of organizations and institutions the likes of GBTC, BAKKT, CBOE, CME Group, TD Ameritrade, Fidelity Investments and others, these amount to “secondary markets” not involved in the actual trading of Bitcoin itself, but rather to be speculating on the price of Bitcoin at any given time through futures, options, derivatives, or whatever. It would seem there’s a reasonably substantial amount of institutional-type money involved in these various trading activities, but really NONE of it is reflected in terms of Bitcoin trading volume, whereby such “volume” represents trading of the actual asset.

But let’s just say that all of a sudden Amazon, Apple and Microsoft (let’s call them “AAM” collectively) decided to start funneling in billions upon billions of dollars into Bitcoin: I guess then we could say for sure that institutional money has finally arrived at Bitcoin’s doorstep, right?!! The value of Bitcoin would probably go a million bucks rather quickly if something like that ever happened.

The thing is, though, that in order for AAM to even acquire a hoard of their very own Bitcoin, it means these companies would have to BUY it from someone else, and again to buy it from someone else who was already hoarding it. And if they actually ever did that, or even acknowledging that they could do it if they want to, then who would they be buying it from if not to be buying it from — “institutions” in the first place?

So this is where we get into the rabbit hole of attempting to more accurately define what an institution really is, at least where it should concern Bitcoin…

But first, let’s use “gold” as an example of a commodity that, not unlike Bitcoin itself being a commodity of sorts, doesn’t grow on trees and must be mined out of the ground. The extraction of both commodities in this illustration require specialized mining equipment to extract, both have a limited supply, and — blah, blah, blah.

So if I own a gold-mining company, then I mine my gold and I sell it to others who want to own it, including selling to both private persons and institutions alike. Now, if I was the owner of the Barrick Gold Company, Newmont Corporation, Goldcorp, or Agnico Eagle Mines, then I would 100% for sure qualify to be defined as an “institution” by all rights, including given to any legal definition of what it means to be an institution. These are currently the four largest gold-mining companies in the world by the way.

Okay, so now let’s talk about “God” in relation to the Earth: “God created the Heavens and the Earth.” — Genesis 1.1 (I know my Bible by God!) Since God created the Earth, then he created the “gold” that’s buried in it. No argument there.

So now let’s talk about “Satoshi Nakamoto” in relation to Bitcoin: Satoshi Nakamoto created Bitcoin, therefore he is God-like for the purpose of this illustration.

It’s way back in 2009 and I’m a nerdy high school kid working at McDonald’s part time to fund my obsession with computers and other high tech stuff. I’m browsing through high-tech sites one day and I come across this article about this “Bitcoin thing” and how I can use my $200 desktop computer to mine the stuff. That sounds like a fun experience to undertake. The stuff is totally worthless at the time, but I can sit there and waste my time and my RAM mining several thousand coins per day just for kicks. Plus I can meet new nerdy friends on the Internet.

Fast forward into the near future and my Bitcoins are suddenly worth a penny apiece. I have 50,000 of them by that time. That’s interesting! Do I sell? No, I’m an obsessive-compulsive person, and a hoarder (just look at my bedroom), so I’m not about to sell ANYTHING!

Fast forward again a few years later and I’ve got hundreds of thousands of these digital gold nuggets, they are worth a bunch of dollars by that time, and I’m suddenly very wealthy. So I start my own online Bitcoin wallet and I call it “COINBASE Bitcoin Wallet.” Later on I end up becoming the world’s largest Bitcoin exchange by volume. Hello, my name is Brian Armstrong, that nerdy high school kid who used to flip burgers at McDonald’s.

So, you know, don’t quote me on this, because I don’t know if that’s even close to being accurate of Mr. Armstrong’s life story up to now, but if not, then it’s probably someone else’s story. The point is that, by any reasonable or legal definition, the Coinbase Company is deserving of being described as an “institution” in terms. And in all likelihood (just my guess here) the bulk of the Bitcoin belonging to Coinbase was likely being mined back in 2009 when Bitcoin was worthless.

But there were dozens, if not hundreds of examples, of people who were average citizens and started mining Bitcoin during its earliest days, and who are now in the league of billionaires. These were individuals who created institutions out of Bitcoin.

So my argument here is really to suggest that “institutional money” has been in Bitcoin all along. It’s been here since day one. And for any potential buyers of Bitcoin, such as with Amazon, Apple or Microsoft, they are merely secondary institutional customers of the “mining institutions” who were responsible for mining the bulk of all Bitcoins in the first place.

If it’s true of mining gold, then it’s true of mining Bitcoin! Institutional money has been in Bitcoin all along.

The miners of Bitcoin were, and still are to this day, the institutional backbone and prevalence of Bitcoin.

So hats off to all the Bitcoin miners of this world! You are institutions in your own right. You were here in the beginning, and you will be here until the end…