In the second half of 2020, institutional investors increasingly started to show an interest in bitcoin[1]. More and more investors have announced that they have allocated part of their cash reserves or a share of their fund toward bitcoin[2].
The most prominent one certainly has been Michael Saylor[3] with his company MicroStrategy holding 70,470 bitcoin as of now. Another important development has been MassMutual Life Insurance Company converting a share of its fund into bitcoin[4]. Particularly, the latter example has given much more legitimacy to bitcoin as an institutional investment asset. An insurance company that deems bitcoin safe enough to invest in is a game changer, as this industry is usually known for its very conservative investment strategies.
The inflow of institutional money appears to have become a self-reinforcing mechanism. Grayscales Bitcoin Trust alone has increased its bitcoin holdings by more than 66 percent from 365,090 on June 9, 2020 to 607,270 bitcoin on December 28, 2020, per bybt.com[5]. In an appearance on CNBC’s “Squawk Box,”[6] Michael Sonnenshein, Grayscale’s managing director, said that it sees inflows that are six-times that of last year on its platform and that the type of investors has changed. Some of the largest investors are now investing with Grayscale and these investors are holding bitcoin for the medium- to long-term.
While a domino effect for institutional investors can be observed, what is the underlining push for that? Why do these investors see the need to convert some of their capital to bitcoin? Saylor often talks about[7] the need to convert a company’s cash reserves into bitcoin to protect its balance sheet against the dwindling value in fiat currencies, and particularly the U.S. dollar (USD)
