2020-12-9 21:57 |
The fear of missing out by institutional investors has played a key role in pushing and maintaining Bitcoin’s price way above the $18,000 price level.
Bitcoin came closest to breaching the crucial $20,000 level at the start of December 2020 and has risen up 170% this year, amidst the existence of a global pandemic and an economic downturn estimated to be worse than the Great Depression.
In 2017, Bitcoin’s rally above $19,000 was fueled by curious retail investors and tech-savvy individuals who understood the potential of Bitcoin’s underlying technology. Financial institutions stayed away with most expressing distrust over cryptocurrencies. However, the 2020 price breach above 2017’s all-time high has institutional investments FOMO written all over it.
Data from the world’s largest digital assets trust fund Grayscale indicates that 81% of new investments came from hedge funds. In one year, Grayscale has moved from managing $2 billion to $10 billion in digital assets.
Institutional FOMO To Increase In 2021Financial institutions are buying Bitcoin in bulk in fear of missing out on the next biggest asset class for the next 100 years. In previous years, many investors and stakeholders taking the lead now would be skeptical of their invested hedges adding Bitcoin to their portfolios.
Additionally, the crypto industry has experienced massive growth over the years to support investments from such institutions. The existence of institutional Bitcoin funds, regulated crypto exchanges, derivatives markets, and crypto-focused trend analytic firms have given rise to new investment avenues for the likes of hedge funds and family offices.
Global Crypto Leader Henri Arslanian, from PwC’s Hong Kong office, said that many licensed crypto custodians and crypto exchanges have helped institutional investors eliminate the “career risk” notion previously associated with crypto investments.
As previously reported, analysts have said that Bitcoin is only getting started and demand is expected to skyrocket even further in 2021. Institutional investors have already started to bypass exchanges by buying bitcoin directly from the miners.
“In 2017, there was retail FOMO. The question is whether we will see institutional FOMO in 2021”, added Arslanian.
Bitcoin as a Digital Gold for Institutional HedgingFurthermore, multiple governments’ role in fiat inflation has increased Bitcoin’s value as a store of value. Institutional investors are viewing bitcoin as the digital gold and are using it as a portfolio diversifier to hedge against inflation as the dollar continues to weaken.
This high level of speculation will potentially lead to a bust in bitcoin prices similar to the massive price crash that followed after 2017’s peak. However, the short-term pullback will likely recover as many hedges have long-term investments in Bitcoin.
According to JPMorgan, Grayscale Bitcoin Funds has played and will continue to play a critical role in widening crypto adoption especially from Millennials who are viewed as the most likely crypto adopters.
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