Institutional investors blast bitcoin prices to new stratosphere

When Melbourne-based digital assets investments and custodial services firm Zerocap published its report, “Bitcoin: This is the Hedge,” at the end of Q3 this year, bitcoin prices had recovered to above US$10,000 since the Coronavirus Crash of March. Back then, Zerocap advised: “You haven’t missed the boat yet. Now is the time to ride the wave of change and invest in bitcoin.”

Fast forward to today. Bitcoin prices have not only rebounded from a minor price tumble last week but are now cresting to a new all-time high of US$19,749. Not only is bitcoin on the cusp of reaching US$20,000 for the first time since its birth in 2009, it has also already surpassed the market cap of the world’s largest traditional bank, Wall Street pillar JPMorgan Chase & Co.

“We know that it’s going to go up as long as the market and the participants in that market continue to value it as so,” Zerocap Principal Trent Barnes told Forkast.News in a recent video interview. “And we’ve got that validation not just from retail, but also from the institutional investors.”

Since its “ black swan” event shortly after the Covid-19 pandemic crippled much of the global economy earlier this year, bitcoin has been on a tear. Prices rose after “ bitcoin halving” happened in May, which signaled a reduction in the rate of future new bitcoin getting mined, and kept rising alongside the tremendous growth of decentralized finance (DeFi) this year.

Last month saw bitcoin passing up JPMorgan in market cap. This week, bitcoin broke its own all-time high in prices not seen since 2017 during the initial coin offering boom.

See related article: Bitcoin’s ‘black swan event’ — should investors worry?

Bitcoin prices crashed after its 2017 heights, as the market became a graveyard of startups that were overly speculative or turned out to be little more than scams. But that was then — and bitcoin’s 2020 bull market is driven by entirely different forces. Now, it’s institutional investors and large corporations that are increasingly buying up bitcoin as an inflation hedge for their portfolios.

“I think the Fed’s printed three times more this year than they did back in the GFC in 2008,” Barnes said. “So I really think that this has increased the curiosity for a lot of our client base.”

As 2020 approaches its end, institutional investors that have been buying up bitcoin include global investment firm Guggenheim Partners, which disclosed in a recent SEC filing its plans to potentially invest up to 10% of its Macro Opportunities Fund, or about US$500,000, in bitcoin. Software company Microstrategy also recently disclosed that it, too, has put money — over US$400 million — into bitcoin. Other bold-faced names that have jumped on the bitcoin bandwagon include PayPal, Twitter CEO Jack Dorsey’s Square and hedge fund manager Paul Tudor Jones.

“You’ve got multiple different companies moving their cash reserves or their cash balance into bitcoin, because I think it’s much more safe a hedge,” Barnes said.

Barnes refrained from speculating on where bitcoin prices would go from here. But he believes that the strong interest from institutional investors and high-net-worth family offices will carry on in 2021.

“We know that it’s going to go up as long as the market and the participants in that market continue to value it as so,” Barnes said.

Watch Barnes’ full interview with Forkast.News Editor-in-Chief Angie Lau to find out more about how investors are looking into bitcoin as a hedge against inflation, potential treatments from regulators around the world, ethereum on the rise as an investment option within the DeFi boom, and more.

  • How bitcoin’s bull run is different from 2017: “What we’re seeing is that bitcoin has become a validated asset, particularly because of the institutional inflows and the institutional protections available. So, we definitely see from our investor and client base a lot more curiosity because it seems to be a lot more certain, more so than it was back in 2017, amidst the ICO boom.”
  • Bitcoin as an inflation hedge: “When we talk about bitcoin being an inflation hedge or a safe haven asset, in a liquidity crunch all markets and all assets will just go down because there’s unprecedented uncertainty in the market, particularly if investors are looking to make margin calls.”
  • The right time to invest in bitcoin: “Now has always been the right time to invest in bitcoin, and if you ask any of the early adopters, they saw that the programmatic money supply schedule, as we go into the last bitcoin, will be mined in 2140. So it’s very predictable. It’s borderless, it’s permissionless. I think Obama called it “walking around with a Swiss bank account in your pocket.” It’s more like a Swiss bank where you are the CEO, the teller and the manager, all in one.”
  • How DeFi is pushing ethereum investments: “What we’re noticing is that, it’s almost like in that bubble graph, the exuberance stage, the yield farming craze that happened, the amount of time and energy that you need to invest in it. So for us, that’s why we have ethereum as one of our assets that we speak about, that we educate on, purely because you can have all these different DeFi plays, but if you really look at it, what are they built on? Ethereum is the protocol that nine out of 10, 10 out of 10 are actually built on.”
  • How much are people investing in bitcoin? “There are some investors that like to go quite high — I’ve got friends that have 50% of their portfolio in bitcoin. Now, that’s really quite high. But a lot of our investors tend to be attributing or allocating between 1% to 5%. And that’s because it’s an asymmetric risk profile of it. That means that a very small investment can equate to minimal losses or extremely high returns, particularly if you look at the track record of bitcoin.”

Originally published at https://zerocap.io on December 4, 2020.

Zerocap is a full-service digital asset investment platform | Commentators on Crypto & DeFi.