After Bitcoin broke through $20,000 in December 2020, it has continued to create new historical price highs in the near future.
Compared with 2017, the ecology of the blockchain industry is more specialized, and the upstream and downstream of the industry are gradually "institutionalized", especially in North America. As of December 24, 2020, the grayscale bitcoin trust fund serving institutional customers currently holds nearly 530,000 bitcoins, accounting for 2.5% of the total, and its scale has increased by 89.58% from the beginning of the year. In the early days, it mainly served the business of its parent company DCG, and now it has expanded to many "new" institutional investors. This is also one of the most "talking about" topics after Bitcoin continues to break through historical high prices in 2020.
In fact, not just in 2020, every round of sharp rise in Bitcoin prices is accompanied by the entry of institutions.
When Bitcoin broke through $1,000 for the first time at the end of 2013, the Silicon Valley venture capital circle began to "enter" with high profile. At the hearing, it was the first to put forward the multi-point view that "Bitcoin will be as disruptive as the Internet and will continue to invest." When the price of Bitcoin exceeded $19,000 in December 2017, CME, the world's largest derivatives exchange, took the lead in launching compliant Bitcoin derivatives trading services.
It can be seen that the "institutionalization" of the digital currency industry is not only a feature of this round of bull market, but a long-term trend.
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Common Profit Models of Compliance Organizations
Financial and Internet giants are the two vanguard forces accelerating the "institutionalization" of the digital currency industry. In 2017, different buyers gathered together, but this year, in addition to common institutional buyers, such as hedge funds and venture capital, more institutional sellers have appeared in the market, including mining services, mainstream mobile payment companies, Internet brokerages, traditional market makers, etc. These platforms are trying to satisfy a larger market need.
The logic of the buyer's market is relatively simple, optimistic about the development of this field and buy and hold. The seller's market generates profits by providing related services, and has a relatively mature business model.
The entry of institutions represents "service specialization". MicroStrategy, an American business intelligence listed company that has been making high-profile calls on social media and buying a large number of bitcoins, uses Coinbase's institutional seller trading services to carry out splitting algorithms to buy bitcoins at high frequency. Coins are not discovered by the market. MicroStrategy CEO Michael Saylor also claimed that he bought 21,454 BTC in as many as 78,388 off-chain transactions. Coinbase's service saved MicroStrategy millions of dollars, and as the price of bitcoin increased, MicroStrategy's first foray into the waters was rewarding.
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3 Types of Institutions That Buy and Be Bullish on Bitcoin
In addition to profiting from Bitcoin-related services, high-profile unilaterally bullish bulls are not an isolated case. For example, the mobile payment giant Square purchased about 4,700 Bitcoins this year, and the business intelligence company MicroStrategy also purchased 70,000 Bitcoins in batches this year. The company's asset allocation in the medium and long term is disclosed in the company's public financial report. CEOs have publicly expressed their optimism on its long-term development on social media. For example, the CEO of MicroStrategy once shared his Bitcoin investment experience with Elon Musk on Twitter.
In addition to the long-term Bitcoin bulls among the institutions, there are also some speculative trading institutions, which also have a great influence on the market.
According to the analysis of Dovey Wan, founder of Premitive Ventures, compliance agencies currently involved in the Bitcoin field are divided into three categories.
The first category belongs to speculative institutions, which are short-term. Most institutions on Wall Street belong to this category, such as Ark Capital, which was born in a professional hedge fund. Attracted by high price fluctuations and liquidity, it is purely transaction-oriented.
The second category is the investment institutions earning the dollar standard. Many Grayscale investors entered the Bitcoin world through their trusts, and then sold them during the profit cycle. They pay more attention to the investment return rate of the fiat currency standard.
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Some institutions may enter the market due to premium arbitrage
According to the data analysis platform Skew’s research on its Grayscale premium arbitrage, the price of the GBTC share of the Bitcoin trust under Grayscale (Greyscale) has long been at a large premium relative to the net asset value (NAV) in the secondary market. Last year’s average The premium rate is 19%.
The Chicago Mercantile Exchange CME, which also faces compliance agencies, allows investors such as "Renaissance Quantitative Fund" to use U.S. dollars to go long or short bitcoin futures contracts without owning bitcoin spot. As the net short position of CME leveraged funds exceeded $460 million, skew believed that hedge funds did not hold "naked short" bitcoin positions, but were carrying out "grayscale premium" cash carry futures arbitrage.
It is not only hedge funds that are attracted by the high premium of its Bitcoin derivatives, but also many traditional market makers such as Akuna, Jump Trading, etc. Market makers provide liquidity for Bitcoin through algorithmic trading to obtain trading platform rebates, and they do not predict the price rise or fall of Bitcoin. The reason for their entry may be that compared with traditional markets, they can get higher returns on digital currencies.
The large holders of GreyScale’s trust shares are BlockFi and Three Arrows Capital, which are respectively a digital currency lending platform and a hedge fund investment company focusing on the blockchain field. They are the most active lenders/lenders in the market .
Grayscale’s use of its trust premium seems to be able to obtain a high interest rate for depositors and lenders of this size. SEC file 13G shows that they are large institutional holders of trusts with more than 5% of the shares.
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