Institutional demand for crypto isn’t subsiding, but impact will be gradual

Published at: Jan. 31, 2021

For example, just last week, when the currency was hovering around the $30,000 threshold, a whole host of pundits was warning investors to brace for impact, suggesting that the premier crypto asset was on the verge of a correction and could once again dip to around the $20,000 region.

However, in just one day, Bitcoin was once again playing with the bulls, retesting the $38,500 limit, only to witness a selloff and eventually settle around the $33,500 region. While for most crypto veterans that might have been another day at the office, others branded the upsurge as “Elon’s Candle,” which relates to Elon Musk, the CEO of Tesla, who included “Bitcoin” in his Twitter bio as well as sent out the following cryptic message “in retrospect, it was inevitable” to his 40 million-odd followers online.

Regardless of the cause, has the recent price volatility scared off institutional investors, or are they still looking to buy Bitcoin? But if they are, it is strange to see BTC continuing to hover between the $30,000–$40,000 range amid reports of big-name players lapping up sizable sums of Bitcoin. For example, on Jan. 22, when BTC dipped by 15%, MicroStrategy announced yet another BTC purchase deal, worth around $10 million.

On the subject, George Donnelly, CEO of Panmoni — a commerce system for Bitcoin Cash — told Cointelegraph that there is absolutely no doubt in anyone’s mind as to whether institutions are still looking to buy Bitcoin, saying:

“Grayscale is expanding to create some new DeFi trusts, and people are buying shares in MicroStrategy to get exposure to BTC. BTC may be stuck around 30K because retail interest seems slack. This bull market so far is not as noisy as the last one. Fewer people seem to be getting excited about it.”

Furthermore, he opined that a core reason as to why BTC is not able to break out is because the currency’s developers have “consciously limited network throughput for ideological reasons” and even attempted to divert use into its layer-two networks, thus reducing the ecosystem’s security. Even then, he does believe that in the coming three months, the currency “will top the $40K mark.”

Bitcoin hasn’t stalled but is merely adapting

With another $2-trillion stimulus package seemingly on its way thanks to the new United States President, Joe Biden, and the Federal Reserve, a lot of hype is once again being generated around crypto, especially as an increasing amount of people are beginning to understand the future implications of such uncontrolled money printing and how it can devalue the U.S. dollar to unprecedented levels.

Filipe Castro, co-founder of Utrust — a crypto-enabled e-commerce platform — told Cointelegraph that the continued expansion, or rather dilution, of the U.S. dollar money supply pool is going to sooner or later bring into perspective the effects of hidden inflation into the American economy, adding:

“While inflation has not been greatly felt by consumers in goods and services, it has manifested itself with the rise of dollar-denominated assets like stock market valuations, real estate, commodity and cryptocurrency. Many institutions have chosen not to hold onto cash as a safe haven but instead invested their capital accordingly.”

He further highlighted that institutions don’t typically directly trade in the market but instead purchase from a custodian intermediary, with the latter usually securing the necessary liquidity beforehand, thus minimizing immediate market influence upon the entry of large buyers.

What this means in layman’s terms is that a surge in demand is reflected asynchronously over time, and what’s more, it comes in large periodic variations instead of a swift outcome from the latest announcements. “It is likely thus that any future surges will take time to manifest and will do so in large and sharp swings,” he added.

Institutional interest isn’t going anywhere anytime soon

While one may be tempted to believe that mainstream interest in crypto may be finally dying out, it’s worth bearing in mind that institutional purchase cycles work very differently from the activity of individual traders and smaller institutions.

For example, Castro highlighted only a few institutions have actually taken an active position on Bitcoin, including some family offices. Not only that, it should be noted that approval procedures relating to new assets and risk assessments can usually take months or years to complete and represent a completely new investment paradigm for many traditional investors.

On the issue, Lennix Lai, director of financial markets for cryptocurrency exchange OKEx, pointed out to Cointelegraph that as the world’s global reserve currency, the U.S. dollar, becomes increasingly weaker, many institutions are turning to other assets such as BTC for its undeniable potential in regard to capital appreciation, saying:

“BTC remains a high-risk asset, and I believe that some institutional investors still have conservative clients with a wait-and-see attitude. If BTC can maintain its de-coupling from the stock market, and equities eventually flatline upon tapering asset purchases by the FED, we could see another wave of funds flowing into BTC.”

That being said, COVID-19 virus mutations, a slow rollout of vaccinations, global lockdowns and rising unemployment are adding to the ongoing economic uncertainty — something that has the potential to spill over into various financial markets, including crypto, as was previously seen over the course of the last 12 months.

On the issue, Nischal Shetty, CEO of cryptocurrency exchange WazirX, reiterated that the reason why an increasing number of funds are continuing to explore Bitcoin is that it is turning into a legitimate hedge against inflation, the effects of which he believes are bound to be felt eventually as the global money pool continues to be diluted. He added: “As inflation increases, we believe that there will be more inflow of institutional investors buying into Bitcoin.”

Castro stated that institutional interest is only just beginning and that recent announcements should simply be viewed as a “wake-up call” for other players who haven’t yet been able to understand the proposition that has been put forth in front of them. “This is yet far from the widespread institutional [interest] that is to come. We are sure to see a higher ceiling if more and larger institutions diversify into BTC and other cryptocurrencies,” he added.

Is another breakout inevitable?

While on paper there may be a host of ways to analyze and attempt to predict the price of BTC, the fact of the matter is that it is pretty much impossible to guess the price action of an asset with any sort of certainty. However, there are a few indicators we can look at in order to glean its potential valuation.

For example, Lai pointed out that based on historical data related to BTC’s performance post-halvings, it could be close to breaking out to $50,000 soon and even surging as high as $100,000 by April 2021.

On the subject, Castro believes that there is still no accurate model to describe BTCs fundamental behavior, adding that the only framework that he actually considers when evaluating BTC is PlanB’s stock-to-flow model, which, if one is to believe, will see the premier cryptocurrency surge to anywhere between the $100,000–$288,000 region before the end of 2021.

Lastly, another reason why making such predictions is so tough in Shetty’s opinion is that with every jump in Bitcoin’s price, an increasing amount of selling pressure seems to be coming from long-term investors: “These are the investors who take long positions and want to dilute at certain historic price points. $40,000 seemed to have been that historic price point where a lot of old Bitcoin holders decided to liquidate.”

Bitcoin (BTC) is proving to be one of the biggest mysteries of the decade, and anyone who claims to know where the currency might be heading is most likely deluding themselves at this point.