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Why are Institutional Investors Jumping on the Bitcoin Bandwagon?

Gone are the days when Bitcoin (BTC) was in oblivion as a significant financial asset. Since its inception in 2009, BTC has been making headways as investors, pundits, and traders continue embracing the leading cryptocurrency. You have probably seen this sign, “Bitcoin Accepted Here,” which cements the adoption of the king of crypto as a mode of payment in many leading outlets.

For the eleven years Bitcoin has been in existence, its journey has not been smooth sailing. For example, BTC has been through thick and thin in 2020 after losing more than 50% of its value in less than 48 hours back in March. Its price nosedived to $3,800 from around $8,000 on March 12, commonly referred to as ‘Black Thursday’ following a global stock market crash.

The panic selling happened amid the grappling effects of the COVID-19 pandemic because people were uncertain about the future after guidelines like massive lockdowns and social distances were implemented. Therefore, a flight to cash was witnessed as investors started to liquidate financial assets like stocks and cryptocurrencies. 

Nevertheless, Bitcoin is back to its winning ways because it is hovering around $18,000, and this is a stone throw away from its all-time high (ATH) price of $20,000 that was recorded in December 2017. 

Bitcoin is proving critics wrong

You may have heard ‘Bitcoin is a bubble that will explode soon.’ These are some of the criticisms the leading cryptocurrency has been accustomed to because some quarters didn’t think it could make it this far and still counting.

We all know that Bitcoin is a store of value, but this factor hadn’t quite sunk in the mindsets of many institutional investors. The COVID-19 pandemic might have been a blessing in disguise for Bitcoin because it has proven to be a hard nut to crack. 

It explains why institutional investors are keeping a watchful eye because BTC is emerging to be a safe haven and inflationary hedge, given that global governments are continuously adopting financial initiatives like quantitative easing (QE) to bail out its citizens from the economic turmoil triggered by COVID-19. By April, the American administration had printed more than $6 trillion to stem the financial calamity we are witnessing.

Truth be told, Bitcoin has received critics right, left, and center, but this narrative is changing because it is a promising investment tool in the eyes of both retail and institutional investors. Institutional investors mean business because they are going out of their way to the extent of borrowing funds to expand their Bitcoin investment portfolio. 

The world’s biggest business intelligence firm, MicroStrategy, recently announced it could use proceeds from a $400 million securities offering in the form of senior convertible notes to buy Bitcoin.  

Is FOMO a contributing factor?

You may have heard that Bitcoin is the millennial version of gold because it is associated with young people. It is not a coincidence because millennials see BTC as an exceptional technological advancement and investment tool. Institutional investors are heeding this call by investing in the leading cryptocurrency because they see a bright Bitcoin future, given that it is associated with young people.

Have you ever felt you want something so bad that you go to extreme levels to get it? This is another factor making institutional investors join the Bitcoin bandwagon due to the fear of missing out (FOMO).

The 2017 Bitcoin bull run that triggered an ATH of $20,000 was backed by retail investors with FOMO. Things are different this time because FOMO seems to be felt more by corporate giants such as Stone Ridge, Grayscale Bitcoin Trust, Square, and Microstrategy based on their large-size Bitcoin investments. 

Institutional investors joining the BTC bandwagon is good news, which will push mainstream adoption. For instance, this will give first-time investors a vote of confidence, whereas investment portfolio managers and asset managers will add it to their watchlist. With a fixed supply of 21 million coins, once demand increases, Bitcoin price will increase. This factor cements BTC as a deflationary currency, making it an attractive investment tool because its value increases with time. 

Institutional investors have realized that Bitcoin is here to stay, and it might be pivotal in filling a high-return investment void. They mean business to the extent of pumping a whopping $429 million into crypto funds and products in a span of one week, according to digital asset company CoinShares. Bitcoin was the primary beneficiary after $334.7 million was invested. 

It might not be known to many that institutions have massive cash reserves meant for lucrative investments. Therefore, as long as a financial asset gives maximum returns, they will hop in. 2021 will be the year of hodl FOMO as many successful businesses will seek to bail themselves out of the inflationary effects of COVID-19 even though they remained open in 2020. This factor will give Bitcoin a competitive advantage, and who knows, its price might go to the moon.

You may also want to read: How DeFi Protocols can be Protected from Potential Scams

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© Copyright of Novum Global Consultancy Pte Ltd {2020, 2021}. All rights reserved.

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