Floodgates Open for Big Institutional Investors to Pour into Bitcoin

Why pay attention to what hedge funds, university endowments, pension funds and other big-foot institutional investors are doing?

Because that’s where the big money is. And Bitcoin is one of the only cryptocurrencies big and liquid enough to absorb institutional-sized capital inflows.

There's just one problem. Few institutional investors have governing charters that allow them to buy cryptocurrencies. But almost all of them can buy common stocks. 

Figure 1. Monthly London gold.
Source: World Gold Council. Click to enlarge.

And now, an SEC-registered, closed-end fund is opening the door for all these institutions to invest in crypto.

Grayscale Bitcoin Trust (GBTC) shares — each equivalent to 0.00096086 BTC — trade freely over-the-counter, so anyone can buy them.

This is a very big deal. It reminds us of what happened to gold prices after the first gold exchange-traded funds (ETFs) opened the door for investors to buy bullion in the stock market.

Gold prices quadrupled in seven years.  

And you should look for even bigger gains as GBTC opens the floodgates for anyone to buy Bitcoin "in the stock market."

Roughly 88% of GBTC shareholders are big banks, hedge funds, and big-foot professional investors. That makes money flowing into it is one of the best indicators of institutional interest in cryptocurrencies.

Big-Foot Institutional Investors Quietly
Shovelling Money into Bitcoin

Figure 2. New shares sold by Grayscale
Bitcoin Trust to buy more Bitcoin. Click to enlarge.
Source: Grayscale.

Figure 2 shows the weekly flow of funds into Grayscale Bitcoin Trust from April 2019 to March 2020.

Between the third quarter of 2019 and the first quarter of 2020, the amount invested in more than doubled — from $388.9 million to $818.5 million.

This is further confirmed by anecdotal reports the "smart money" on Wall Street is finally starting to pour money into crypto.

For example, legendary trader and Forbes 400 billionaire Paul Tudor Jones recently told CNBC he's putting 1% to 2% of his assets in Bitcoin.

Based on the size of his hedge fund (Tudor BVI — with $21 billion in assets under management) that comes to a whopping $210 million and $420 million.

And with the Federal Reserve printing $2.9 trillion in just 13 weeks, this river of paper money seems set to flow even faster going forward.

The Case for Bitcoin at $180,000

For centuries, investors losing confidence in paper currencies have turned to gold as a store-of-value.  But now, there's a new kid on the block: Bitcoin.

Like gold, Bitcoin is scarce. It has a hard ceiling on the maximum number of coins that can ever be created. But gold is heavy (70% heavier than lead). To transport it you need to hire guards with guns. 

Plus, you need an expensive steel vault for safe storage. And even then, nothing keeps a hostile government from sending soldiers to seize it.

By contrast, Bitcoin is weightless. It moves via the Internet at the speed of light — at near zero cost. And unlike gold, it is virtually unconfiscatable.

The only physical manifestations of your Bitcoin ownership are the character strings that comprise your wallet address and private key. 

Never has a financial asset been more easily concealable — than this.

Advantages like these arguably make Bitcoin a better safe-haven investment than gold itself. 

Yet Bitcoin's total market cap is only $175 billion. A mere pittance compared to the world's above-ground hoard of gold — which weighs in at a hefty $9 trillion.

But as the financial world discovers Bitcoin's true potential as safe haven asset, it's going to have a lot of catching up to do.

How far up can it go? 

Well, if Bitcoin captures only a third of gold's safe-haven business, it's going be trading near $180,000 — roughly a 20-fold increase from present levels.

Bottom line: If you think unlimited money-printing is going to send safe-haven assets blasting up — which is clearly what GBTC and Paul Tudor Jones are betting on — Bitcoin is the one safe-haven asset with the most profit potential.


Juan and Bruce

About the Contributor

Dr. Bruce Ng is a literal rocket scientist who was among the first to write about DeFi. Today he applies the same mathematics and scientific methods to the crypto space to discover the world’s most promising, and potentially most profitable, altcoins.

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