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Bitcoin has just blown past $20,000 and enters new all-time highs. CryptoCompare has reiterated its previous analysis but included some updates pertaining to the growing trend of corporate investment in bitcoin that is a key fundamental driver of this rally.
Charles Hayter, Co-Founder and CEO of CryptoCompare said
“The corporate investments in Bitcoin from the likes of Square, Microstrategy and more recently Ruffer and MassMutual have caught the attention of the investing world. This growing demand is simply outstripping Bitcoin’s low and fixed supply. I expect more corporations to follow suit in 2021."
“With the macroeconomic backdrop of unprecedented monetary expansion and negative real interest rates spurred on by COVID-19, it is no wonder that investors of all types are looking at hard assets like Bitcoin as an alternative to gold. Unlike the retail-driven bull run in 2017, institutional investors can allocate capital effectively and with considerably lower risk as the markets are more mature, efficient and regulated.”
Corporate support for Bitcoin is driving price
- One of the factors driving the Bitcoin price is the additional corporate support for Bitcoin we have seen during the past three months from the likes of MicroStrategy and Square holding Bitcoin positions. And, most importantly, PayPal allowing its users to buy, sell and hold cryptocurrencies is in our view the most important news this year for the digital asset industry.
- Dec 11th: More recently Microstrategy has raised $650 million of convertible senior notes with the purpose to buy more bitcoin, these notes are locked up until 2025.
- Dec 11th: Massachusetts-based insurance firm MassMutual announced on Dec. 11 that the company bought $100 million in Bitcoin for its general investment account.
- Dec 16th: Ruffer Investment has announced its $744 million bitcoin holding.
- Highly respected macro investor Paul Tudor Jones disclosed that almost 2% of his portfolio was invested in Bitcoin in May this year. He cited the risk of inflation as a primary reason for his allocation and said that we are witnessing the “birthing of a store of value.”
- The corporate investments in bitcoin are turning into a domino effect as asset managers tumble their portfolios into bitcoin.
Bitcoin as a hedge against inflation in a COVID-19 world
- With the macroeconomic backdrop of unprecedented monetary expansion and negative real interest rates spurred on by COVID-19, it is no wonder that investors of all types are looking at hard assets such as Bitcoin as a gold alternative and a hedge against inflation.
- Gold, which is Bitcoin's main competition as a store of value asset, has done OK this year (up by 19.28% in the year-to-date period), but performed much worse than Bitcoin which is up by 178% YTD.
- Several high-profile central banks including the Reserve Bank of Australia and Bank of England have announced drastic Quantitative easing (QE) plans to combat the economic threat of COVID-19. Whilst these measures seem prudent, some investors are concerned this will lead to a significant rise in inflation. Typically, gold has been seen as the de facto hedge against rising inflation, but more and more Bitcoin is turned to as a hedge against inflation.
- Bitcoin’s position as a gold competitor is set to increase as millennial investors - who strongly favor BTC over gold - will become a larger and more important component of the investor universe. Gold still has an approximately 30x market cap in comparison to Bitcoin and even a small crowding out of gold by Bitcoin as the alternative currency would lead to a Bitcoin price of over $100,000.
Why this bull run is different from 2017
- In 2017, the bull run was driven almost entirely by retail investors and the initial coin offering (ICO) mania where projects raised tens of millions of dollars on a whitepaper with no product. By contrast, the 2020 bull run has seen around 10-20% of the search volume compared with the heights of the 2017 bull run according to Google Trends data.
- Not only are the buyers in this bull run different but so is the market structure. In 2017, the digital asset markets simply didn’t have the financial plumbing to support capital inflows from institutional investors. There was a dearth of regulated exchanges, custody solutions, crypto-native credit lines, and so on. In the last three years, there has been a tremendous amount of work on building better, more efficient markets. CryptoCompare for its part has built institutional-grade data feeds that are helping build digital asset index products suitable for institutional investors.
- Given the improved level of surveillance and regulation, market manipulation has become much less of a concern than in 2017. The prospect of more Bitcoin exchange-traded products seems likely in 2021, which would certainly boost institutional access to Bitcoin.
Investments in Cryptocurrency Data Infrastructure
- We are also seeing a fair few players show their hand on the data front. As the oldest and most widely used data provider at CryptoCompare it is validation of our business model to see such heavyweights enter the fray - and is testament to our early moves in securing data rights and securing the channels for data distribution.
- We are seeing a strong uptick in regulators and funds looking for reliable scalable data delivery. With over 320 clients at present and 40 indices our infrastructure is handing 10million calls per hour and 20k live connections to our websockets.
- S&P investing in a Lukka & Cboe with Coinroutes are positives for the industry going forward.
- These indices and data products lead to robust pricing and ETP products that allow for gaining exposure and satisfying various risk appetites in a regulated manner. The FCA moves this morning also highlight the good relationships being generated by industry lobby groups such as CryptoUK and GDF.
- A side effect of more products is a reduction in friction that then sees a demand spike and drives the price action. The market is being cornered to some extent by ETP's.
