Institutional investment in crypto has long been called the final hurdle to mass adoption. Well, those tides are changing. We look at the companies and banks with crypto on their balance sheet.
Institutional interest in the space is just still in its infancy but probably more advanced than you may realise. Companies like Grayscale, MicroStrategy and Tesla are some of the biggest holders in the world. We look into the effects that institutional interest in crypto has on the market.
Perhaps no investing community is more passionate than the crypto faithful. Extending from the Bitcoin traditionalists to the DAO crowd, opinions on the future of crypto are passionate and diverse. One thing that unifies many crypto diehards is the need for institutional investment.
Big banks and companies adding crypto to their balance sheet would theoretically increase the demand massively. MicroStrategy has the lead the charge, Tesla also has some exposure.
Why would a company add crypto in the first place? In the case of Bitcoin, there are a few characteristics that make it valuable; they revolve around Bitcoin as a store of value and an alternative to traditional, centralised banking. Of course, the financial upside is also appealing to many investors as well as the PR such investments generate. Generally, other cryptocurrencies haven’t been adopted by institutions yet.
The biggest institutional holder of Bitcoin is Grayscale. The investment company holds roughly 650,000 Bitcoins on their books, over 3% of the total supply. During their first day of operation in September 2013, Bitcoin was trading at US$125 each.
MicroStrategy famously went from an unknown company to the leader of the equity-crypto revolution. At the end of 2021, the company owned 125,000 $BTC at an average price of US$49,000. Then there is Tesla. Equipped with a Master of Coin (formerly known as the CFO), the company has added 43,000 $BTC over the course of 2021.
Holding crypto is one thing, actually integrating it into everyday use is another. There are a number of companies that accept Bitcoin as a form of payment. From Starbucks to Microsoft, buying a cappuccino or purchasing Call of Duty with $BTC is possible. Interestingly, Bitcoin has transitioned away from being a viable form of payment due to its lack of speed.
Just like other assets, derivative markets exist for certain cryptocurrencies too. Just like futures on wheat or gold or the S&P 500, futures can be purchased on Bitcoin. The market launched in late 2017 and has accelerated the exposure institutions have to crypto. In short, a futures contract is an agreement to buy or sell a pre-determined good at a pre-determined price at a certain date. Once the contract expires, delivery of that good is required. Early research has suggested that the Bitcoin derivatives market has reduced the randomness of Bitcoin (fractal characteristics is the academic term for randomness). That may be hard to believe given the crypto’s volatility but pre-2017 the market was even less predictable with bigger swings.