Institutional and enterprise investors began to pile into the crypto world en masse in 2020.
Institutional investors deal in large amounts of crypto, usually bitcoin (BTC). Until now, large investors, or whales, had been private or, at least, rather quiet, about their operations. Not any longer.
Institutional and enterprise investors have to declare their movements, so hiding isn’t an option. This lets us take a look at the biggest movers in bitcoin in 2020.
In August, business intelligence company MicroStrategy burst onto the crypto scene. In August and September, the company started buying bitcoin in bulk. MicroStrategy CEO Michael Saylor replaced $50 million of its cash reserves with bitcoin.
Saylor’s “why” was as stark as his buying spree. He claimed that the COVID-19 relief spending in the United States had devalued the currency, and that bitcoin was a safe bet against that.
Also, on Oct. 28, Saylor disclosed that he personally owned 17,730 BTC.
Paul Tudor Jones
Legendary hedge fund manager Paul Tudor Jones told CNBC in May that he had between 1 per cent to 2 per cent of his $5.8 billion in bitcoin. While his purchases have not been public, his bullishness on BTC is a matter of public record.
At the head of the class, or, since these are whales, head of the pod, is Grayscale. The largest bitcoin purchaser has upended the market by buying more BTC in November than was created.
Grayscale Bitcoin Fund’s holding in bitcoin is so big that even investors buying into it make news. In November, Guggenheim Funds filed with the Securities and Exchange Commission (SEC) that it was going to engage in a $500 million investment into Grayscale Bitcoin Fund.
BeInCrypto wrote in October, that “if you’re wondering what was behind the change in sentiment in the bitcoin price, you might want to thank Jack Dorsey.” That’s because Jack Dorsey is the CEO of Square, which has an unusual place in the bitcoin universe.
Square was created as a small-business payments solution. Along the way, the company began to buy bitcoin for its users to purchase. The concept’s taken off, and in Q2 2020, the company did $875 million in bitcoin revenue.
The reason why Dorsey gets mentioned, though, is that on Oct. 8, Square bought 4,709 BTC, or $50 million worth of bitcoin to keep on its balance sheet.
This amount equals 1 per cent of Square’s total assets. Compared to Grayscale, it’s not huge, but this is another enterprise moving assets into bitcoin, a la MicroStrategy. Maybe the cryptocurrency community should be thanking Michael Saylor, but sentiment changed with Square’s purchase.
PayPal started showing up on crypto radar in 2019 when it was supposed to partner with Facebook on the Libra coin. Later, news that CEO Dan Schulman owns bitcoin gained attention.
In 2020, PayPal announced that it would not be working on Libra. Two other pieces of news put the company on our list for 2020, though.
First, on June 22, PayPal announced that it would allow the direct purchase of cryptocurrency on its platform. Users had previously been able to use PayPal for transactions on Coinbase, but directly opening the company’s then 325 million clients to crypto was seen by analysts as a turning point in the industry.
Second, and closer to the point, was related to a report in November. Pantera Capital claimed that the rise in bitcoin’s price was due to Square and PayPal combined buying up more bitcoin than was being mined.
According to Pantera Capital, PayPal was buying an equivalent to 70 per cent of the new bitcoin being mined. At the same time, Square’s cash app is driving purchases of 40 per cent of new BTC.
These two alone are buying 110 per cent of new bitcoin. What Pantera misses, though, is that at the same time, Grayscale alone is also buying more bitcoin than is being created.
Massachusetts Mutual Life Insurance Co.
Amid the headlines created by MicroStrategy and friends, other companies entered the market in a big way. For example, Massachusetts Mutual Life Insurance stocked up on $100 million of bitcoin for its general investment account. Mass Mutual is massive, with nearly $235 billion in its general investment account. This makes the bitcoin investment relatively small for the company, but big enough for the industry to take note.
On Dec. 15, Ruffer LLP of Great Britain announced that it was adding bitcoin exposure to its portfolio. Ruffer’s parent company has 20.3 billion British pounds in AUM. However, the allocation is $15 million.
This one doesn’t have a dollar value attached to it. However, the news is golden. On Dec. 19, Christopher Wood, global head of equity strategy at Jefferies, announced that the firm was buying bitcoin. The $51 billion investment firm is drawing down its gold position from 50 per cent of its long-only global portfolio to 45 per cent and investing that amount into bitcoin.
The mantra, “past performance is not indicative of future results,” exists for a reason. With that caveat in mind, exploring the fallout from the influx of enterprise and institutional investors seems warranted.
JP Morgan’s analysts see trends for 2021 that further the trends seen in this article. First, they see more institutional investors. Corporates ostensibly replacing dollars in their treasuries — or covering a crypto play thereby — should continue as well.
A tendency among the investment firms is notable. Gold is being replaced with bitcoin. This fits the change in view of bitcoin as a means of storing value, instead of a currency, as was the case during the 2017 bull run. That alone makes bitcoin a more interesting investment asset for institutional investors than before.
Another aspect of the change from gold to bitcoin is that bitcoin is now seen as part of a risk-on inflation hedge. Gold is losing some of its luster, at least for this part of the investment cycle, and the bitcoin community stands to benefit from it.