There is no doubt that Bitcoin (BTC) is becoming an increasingly popular asset among institutional investors. At the end of the second quarter of 2020, Fidelity reported in a survey of nearly 800 institutional investors that 36% owned cryptocurrencies. In a separate survey by cryptocurrency insurer Evertas, respondents were said to believe that hedge funds would significantly increase their cryptocurrency holdings. It is also estimated that 90% of institutional cryptocurrency holders plan to invest in Bitcoin more in the next year.
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From MicroStrategy and Grayscale to JPMorgan and Goldman Sachs, Bitcoin has cemented its position in portfolios as an asset to be held as a hedge against inflation and currency depreciation. But then there are real technical reasons why institutional investors are more optimistic about Bitcoin, with some predicting it will reach $ 1 million by 2025.
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While the future value of Bitcoin may remain a moot point, the truth is that investors and financial institutions now believe that “owning Bitcoin may be less risky than not having access to Bitcoin at all.” In fact, according to cryptocurrency research firm Messari, more than 81,000 BTC “belong to the treasury bonds of listed companies”.
But what sparked Bitcoin’s rise in 2020 and what are the institutions that Bitcoin investors are seeing now and not seeing before?
Unlimited Bitcoin network and blockchain technology
Bitcoin operates as a non-sovereign currency that is not linked to other asset classes. For institutional investors, it serves as a diversification tool to hedge against highly correlated markets such as the S&P 500, Nasdaq and the Dollar. The two main areas in which Bitcoin and blockchain technologies are of greater value to institutional investors, include secure, unlimited transactions and access to new opportunities that may not exist in traditional financial markets.
Bitcoin’s innovative technology, including smart contracts, unlimited payments, lower fees, and faster and safer transactions, is a catalyst that will prepare us for a future in which national currencies will move away from their current physical form and become digital.
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With US dollar inflation approaching, well-known investors such as Ray Dalio and Paul Tudor Jones also began to “love Bitcoin more and more” and described it as the “best way to hedge against inflation,” comparing it to gold and copper. As banks and technology providers continue to invest heavily in research and development projects related to verifying and depositing financial transactions, such as the new JPMorgan business blockchain and the home of Onyx digital currency, we will continue to see institutions increase their presence in the void.
Implement quality solutions
Custodians are used by financial institutions such as hedge funds and mutual funds, which require holding client assets with a professional custodian for regulatory purposes.
In the past, institutional investors were skeptical of bitcoin and other cryptocurrencies due to the regulatory framework, and until recently, the broader cryptocurrency ecosystem also lacked a serious shortage of cryptocurrency solutions. With the urgent need for a sufficient number of managers to support the growing supply of cryptocurrencies and increase clarity regarding the regulatory requirements to operate and invest in cryptocurrencies, a sector has emerged with institutional incubation solutions.
One such solution is Anchorage, a newly formed cryptocurrency deposit company with support from Andreessen Horowitz and a number of other notable venture capital firms in the blockchain. It was included with the idea of providing institutional investors with a digital ownership manager for cryptocurrencies. Bank Frick, a privately owned bank in Liechtenstein, has prioritized offering a range of blockchain banking services, including support for token launching, cryptocurrency trading and digital property storage. The regulator bank’s services are aimed at professional market participants and financial intermediaries in Europe.
Banks have also been given the green light to protect crypto companies. In a memo to the public, Jonathan Gould, Senior Vice President and Senior Advisor to the U.S. Monetary Authority, wrote in July:
“We found that any national bank could provide these cryptocurrency storage services on behalf of clients, including having unique cryptographic keys associated with the cryptocurrency.”
This was a significant development in the industry, as it allowed regulated financial institutions to have the same custody services that were previously provided by exclusively specialized firms.