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Institutions Are Piling into Bitcoin Again. Will Regular Investors Miss Out?

Institutions are the Holy Grail of Bitcoin adoption. Far from the volatility and fickleness of retail investors, they provide the bitcoin market — or any other market they enter — with some much needed stability and constancy, buying up large(r) quantities of the cryptocurrency for the longer term and keeping it more insulated from potential shocks.

Reports suggested that institutional investment was largely responsible for kicking off the bull market that began in October/November 2020, when bitcoin rose from a fairly modest price of just over $10,000 to $30,000 by the end of the year.

This jump set in motion a period of accelerated expansion for the cryptocurrency market (and industry) that arguably still hasn’t ended even now. And it now seems that institutional investors have just begun ramping up their investments into BTC in the past few weeks, creating the possibility of a very strong end to the year.

Institutions are piling into Bitcoin. Will they drive up the price and push away retail investors?

Indeed, from new custody services to changes in institutional behavior, it seems that bigger investors are increasing their stake in the bitcoin market. Does this mean that retail investors should get in now before institutions price them out of the market?

Institutions Double Down On Bitcoin and Cryptocurrency

Where to begin with institution-related Bitcoin news? Well, maybe we should start with the Securities and Exchange Commission’s decision to approve the Volt Equity ETF, which is an exchange-traded fund tracking stock in companies that invest in bitcoin or derive the majority of their profits/revenues from Bitcoin-related activities.

Source: Twitter

While the SEC has so far refused to approve an ETF that directly tracks the price of bitcoin, the Bitcoin community regard this as a significant step in the cryptocurrency’s increasing acceptance by mainstream finance. Not least because it provides institutions with a regulated vehicle to gain exposure to bitcoin’s price.

And institutions are indeed interested in gaining exposure to bitcoin right now, as revealed by a piece of research from JPMorgan last week which revealed that said institutions are increasingly turning to BTC rather than gold as a hedge against rising inflation.

“The re-emergence of inflation concerns among investors has renewed interest in the usage of bitcoin as an inflation hedge,” wrote the bank’s analysts, citing this factor as a chief cause of BTC’s surge from $40,000 in late September.

Data from CoinShares reveals that cryptocurrency funds — which cater almost exclusively to institutions — had recorded their seventh consecutive week of net positive inflows. At a total of $411 million, this still pales in comparison to inflows recorded in May, but it nonetheless indicates an increase compared to previous months, when outflows were the norm.

Source: CoinShares, Bloomberg

With year-on-year inflation in the US, UK and Eurozone now reaching 5.3%, 3.2% and 3.4% respectively (and rising), this gradual increase in institutional inflows is likely to continue in the coming weeks. Institutions will want to retain (or grow) the value of their capital, and with inflation so high and interest rates so low, bitcoin increasingly seems like one of the best ways of doing this.

And it seems as though a growing number of banks and other institutions now want to help them enter the bitcoin market. For instance, just this past week US Bank — the fifth largest retail bank in the US — launched its own cryptocurrency custody service.

“Our clients are getting very serious about the potential of cryptocurrency as a diversified asset class. I don’t believe there’s a single asset manager that isn’t thinking about it right now,” said Gunjan Kedia, vice chair of the bank’s wealth management and investment services division.

These are strong words, but it does indeed appear to be the case that even funds you wouldn’t expect to be dabbling with bitcoin in fact are doing just that. Also last week, it was revealed the Soros Fund Management — which had around $28 billion in AUM at the last count — has bitcoin in its portfolio. According to Dawn Fitzpatrick, the CEO and chief investment officer of Soros Fund Management, the fund owns “some coins […] but not a lot,” and has formed a more favorable view of the cryptocurrency over time.

“I’m not sure bitcoin is viewed only as an inflation hedge here. It’s crossed the chasm to mainstream,” she told Bloomberg.

Will Institutional Investment Price Out the Retail Investor?

All of this renewed institutional interest is obviously great news for Bitcoin and cryptocurrency in the abstract, but could it be bad news for smaller retailer investors? Might such investors be increasingly priced out of bitcoin, ethereum and other major coins as institutions buy up increasingly large positions?

Well, yes, this is a possibility. However, institutions still have a long way to go before they give bitcoin a price that’s unaffordable for the average lay investor.

More importantly, we still have a very long way to go before all potential institutional investors actually invest in bitcoin, thereby depriving it of any substantial future price increases. This is the important thing to watch out for, that institutional investment reaches ‘saturation level,’ with all likely institutions already invested in bitcoin, and with the price pushed as far as such institutions can likely push it.

There’s likely plenty of time before we reach such a scenario, meaning that retail investors can likely buy a (fraction of a) bitcoin and still enjoy good gains.

Indeed, analyst (and Crypto Twitter) opinion seems to think that bitcoin may double in price not before long. Some are eyeing a level of around $100,000 in or around the year’s end, with Standard Chartered writing in early September that it expects BTC to reach this level by early 2022. Chainalysis CEO Michael Gronager has also predicted such a price, while Bloomberg analyst Mike McGlone continues to stick to this level.

The famous/controversial stock-to-flow model — which compares current supply of BTC against its current issuance rate — also suggests a price of around $100,000 by the year’s end.

Source: Twitter

Such forecasts dovetail nicely with a picture of institutions returning in larger numbers to bitcoin (or coming for the first time). And while the return of institutions is likely to push bitcoin’s price even higher, the fact that this price remains below its current ATH of $64,804 suggests that there’s plenty of room for retail investors to enter the market before it gets too hot.

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CryptoVantage Author Simon Chandler

About the Author

Simon Chandler

Simon Chandler is a journalist based in London. He writes about technology, markets and politics, and has bylines for Forbes, Digital Trends, CCN, Wired, TechCrunch, the Verge, the Sun, the New Internationalist, and TruthOut, among many others. His Twitter handle is @_simonchandler_

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