The state of the global economy has prompted institutional investors to look for alternative ways to invest. Quite often, Bitcoin (BTC) becomes such a tool.
Business intelligence company MicroStrategy has acquired BTC for a total of $ 425 million since August. Meanwhile, digital asset manager Grayscale Investments raised record amounts in the first and second quarters of this year ($ 1.4 billion in total).
But should we celebrate institutional investors as saviors of cryptocurrencies? Or, conversely, lead to the collapse of the digital asset industry?
Related: Why organizations are suddenly interested in Bitcoin
Secure assets in the midst of the global crisis
Before I answer the questions above, let’s take a look at the main reasons why organizations turn to cryptocurrencies. It is a global crisis when it comes to making money on safe assets for the traditional market. Low-risk instruments such as expensive savings accounts and bonds such as US government bonds have shown minimal returns in recent years. The return on these assets is so low that inflation often lowers the return and leaves investors with a negative return on investment or return on investment.
Furthermore, some countries such as Denmark, Switzerland and Japan use negative interest rates to stimulate the economy. This is a good way to combat deflation, but negative and low interest rates prevent people from investing in safe assets. However, this does not mean that traditional instruments fail investors. On the contrary, we are at a stage in the development of the global economy when low-risk investments do not yet provide sufficient returns.
However, this will lead to an increase in interest in cryptocurrencies until the global economy moves to the stage where traditional assets begin to perform well again. Compared to the market as a whole, the digital asset industry is developing much faster, and there are many reasons for this phenomenon. Regulatory control over the market is limited, and crypto projects have a different way of thinking. The current technological level allows and stimulates companies to innovate.
As a result, cryptocurrency has become a mature industry with a history that provides excellent returns for investors. Furthermore, even in the midst of the global economic crisis, Bitcoin’s volatility is down. The less volatile an asset is, the less risk for investors.
While the above makes cryptocurrency attractive to individuals, the current market for digital assets provides institutional investors with a way to meet investor expectations for returns. The stakes are high, and they are looking at Bitcoin for a very good reason.
The impact of the recent institutional boom on cryptocurrencies
People in the cryptocurrency field often believe that institutional investors will be the most important intermediaries in the next bitcoin boom. However, this is not the case here. And the reverse – that institutions will destroy the cryptocurrency market with their whale-sized investments – is also not true.
Instead of “disrupting” the cryptocurrency market or launching Bitcoin “to the moon”, institutional investors are helping the cryptocurrency market mature by making it more efficient. For example, when BTC is undervalued, they use this inefficiency to rise and fall when digital assets are overvalued.
Since institutional investors are experienced investors with long experience in the money market, they follow the above techniques to reduce risk and increase returns. This reduces volatility and increases liquidity in the market. However, factors such as the rate of Bitcoin adoption and the current macroeconomic situation have a greater impact on the long-term underlying BTC price movement than institutional investors.
On the other hand, a more mature market also means that the potential return on cryptocurrency investments will also decline. But this will not lead to the collapse of the digital asset industry. On the contrary, it is a sign of the natural development that all emerging markets go through as they enter the phase of mass adoption, leading to a more mature, stable and less volatile cryptocurrency sector.
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However, a strong position in cryptocurrency, as MicroStrategy recently did, provides a buy signal for other institutional investors who want to view cryptocurrency as a serious asset class. It is important to note that MicroStrategy’s Bitcoin case is important considering that the company is a listed company listed on the Nasdaq stock exchange.
Therefore, he has strict requirements for financial care of his shareholders. With the acquisition of large amounts of BTC, MicroStrategy is convinced that the move will not adversely affect the share price or the company’s social responsibility.