Bitcoin has long been a niche asset only adopted by those on the fringes of society. But this is rapidly changing as institutions have started to enter the cryptocurrency space as they see that there is value in owning BTC and other digital assets.
Andrew Kang, the founder of DeFi-focused crypto fund Mechanism Capital, recently broke down why the “backdrop for institutional adoption of Bitcoin” is stronger than ever before.
The backdrop for institutional adoption of Bitcoin is the strongest it’s ever been:
– Low volatility
– Looming inflation
– Low yields
– High valuations in other asset classes
– Price 50% off highs 3 years ago
– Validation from TradFi elite (PTJ)
– Established custody solutions
— Andrew Kang (@Rewkang) October 9, 2020
The institutional backdrop for Bitcoin has never been any better
Kang sees upwards of seven reasons why institutions gaining exposure to Bitcoin is making more sense than ever before:
- Bitcoin volatility has declined massively. Volatility is often one of BTC’s characteristics most often cited by traditional investors as reasons to avoid this market.
- There is “looming” inflation, which should drive down the value of the U.S. dollar.
- Yields are low, meaning the opportunity cost of owning Bitcoin goes down.
- Other markets such as the stock market and real estate have extremely high valuations.
- The price of BTC is off 50 percent from its all-time high despite positive macro trends.
- Validation by Wall Street investors and banks.
- Companies are launching “established” custody solutions that should allow notable investors and even retail investors to store their coins at low cost and with little risk of hacking.
It’s no surprise that with this backdrop, institutions and corporations are embracing Bitcoin where possible.
On Thursday, $80 billion financial technology company Square revealed that it had deployed $50 million worth of cash from its balance sheet to purchase Bitcoin for investment purposes. This investment represents one percent of the firm’s assets. Jack Dorsey, who heads both Square and Twitter, has long been a fan of Bitcoin, calling it the internet’s native currency.
Similarly, MicroStrategy, an American business services company, has purchased $425 million worth of BTC for its balance sheet over the past two months.
On Wall Street, there are notable individuals and firms dabbling in the space.
Most notably, billionaire hedge fund manager Paul Tudor Jones announced earlier this year that he would be investing 1-2 percent of his fund’s capital in Bitcoin futures. Echoing the points Kang brought up, Jones said that he was purchasing BTC because he sees immense value in the cryptocurrency during the ongoing macroeconomic turmoil where inflationary trends could take place.
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