In the history of financial markets, there have been few tradable assets that have conquered this frontier. Currently, Bitcoin has the eighth largest market capitalization among all tradable assets in the world, including stocks and commodities. Among the top 10 tradable assets traded on the exchange, is just above Tencent, which Bitcoin drew on its eventual rise beyond the $ 1 trillion mark, below which is Facebook, which was shaken earlier this month.
Bitcoin is just one step away from Google and two steps away from silver. Considering the history of commodities like silver and gold, which have been traded for centuries, Bitcoin’s history is extremely short, starting only in January 2009 as nothing more than an experiment. Even stocks like Google and Tencent have histories of more than two decades, while Apple and Microsoft have more than four decades.
Was the final increase in Bitcoin organic?
In analyzing the moment when Bitcoin finally broke that milestone, it is evident that there were no major institutional announcements that led to increased market capitalization. The Coinbase Premium Bitcoin Index of on-chain data provider CryptoQuant – when the premium is high, indicates strong spot buying on Coinbase – suggests that at the time this discovery occurred, Coinbase’s premium was negative.
Ki Young Ju, CEO of CryptoQuant, explained to Cointelegraph what this suggests: “Purchasing power appears to come mainly from whales and retail investors, not institutional investors or high-income individuals in the US”
Finally, Bitcoin (BTC) broke the $ 1 trillion market capitalization frontier on February 19, with its market capitalization tripling in just three months. This important milestone came almost a year after it plummeted to less than $ 100 billion on March 12, 2020, more commonly known as “Black Thursday” in the cryptocurrency community.
It is also important to consider the proportion of BTC actually in the supply in circulation before assuming the price implications of Bitcoin volumes. According to Glassnode’s research, 78% of Bitcoin’s supply is illiquid, which implies that the asset’s supply and demand economy is only a small aspect of how its price is influenced.
Fortunately, or unfortunately, for the market, Bitcoin’s price still depends mainly on sentiment. This is evident in the fact that Robinhood has already acquired more than 6 million investors in retail cryptography this year alone.
While acknowledging the presence and general influence of institutional investors, Jay Hao, CEO of the cryptocurrency exchange OKEx, told Cointelegraph that a Twitter trend could be responsible for the $ 1 trillion boost: “This frenzy that included Elon Musk, Michael Saylor and Senator Cynthia Lummis, could have helped BTC to break the $ 1 trillion market capitalization without any final push from institutional investors who generally don’t buy when markets are looking overwhelmed. ”He added:
“At this point, many technical indicators suggest that BTC was starting to look overbought, as retail traders entered the market fueled by the ‘laser-eye’ trend that invaded Twitter with participants shooting for $ 100K BTC, including many CEOs and politicians. ”
Institutional involvement in Bitcoin can be overestimated
Crypto venture capitalist Brock Pierce described to Cointelegraph that, in his view, institutional involvement could indeed be “overestimated”, but is still present, as evidenced by its long positions:
“There has been a mix of retail and institutions and other factors that drive markets. In terms of metrics in the chain, we are seeing large amounts of bitcoin coming out of the exchanges and also miners who are reluctant to sell – both serve to reduce supply and reduce any selling pressure on the market. ”
He further opined that companies are adopting “programmatic buying” when trying to achieve a certain allocation. In addition, as indicated by Pierce and Hao, it is often market sentiment that gets retail investors involved, causing big price movements in the BTC market.
Ju recently pointed on Twitter, that prominent miners often have private portfolios separate from their mining portfolios; therefore, its power may be greater than the on-chain analysis may suggest. He further clarified the implications this could have on the price of Bitcoin:
“Affiliated miners (whales) appear to sell Bitcoins in exchange, not through OTC deals. They have personal portfolios other than mining portfolios, so it is important to see the trend, not an absolute number. The significant exit came when the price was 58k and has been cooling recently. “
Do institutions continue to buy the plunge?
After Bitcoin passed the $ 1 trillion mark, it quickly reached its highest record of $ 58,352 on February 21. But the next day, the price of BTC fell 20% alongside several other cryptocurrency assets in a correction now more commonly referred to as “Bloody Monday” in the cryptocurrency community. Its price continues to trade between around $ 45,000 and the previous support level of $ 50,000.
During this drop in price, it seems that institutional investors took the green light to buy the drop in large quantities. Jack Dorsey’s Square bought another round of Bitcoin, approximately 3,318 BTC for $ 170 million. Square bought Bitcoin for the first time in October 2020, buying 4,709 Bitcoin for about $ 50 million at an average price of $ 10,618 per BTC. Square’s motivation to buy the plunge in a second round of investment may be boosted by the fact that its earnings in the first round of investment are around 400%.
In addition to Square, Michael Saylor’s MicroStrategy bought another $ 1 billion in Bitcoin, plus 19,452 coins at an average price of $ 52,765. This investment in Bitcoin comes just six months after its initial $ 250 million investment in August 2020.
MicroStrategy now has more than 90,000 BTC, which represents 63% of its total market capitalization. Saylor announced that MicroStrategy “remains focused on our two corporate strategies for growing our business analytics and bitcoin acquisition and maintenance business.” Hao further commented on the purchase:
“MicroStrategy’s debt offering and the subsequent purchase of an additional $ 1 billion of BTC was a massive announcement, although we already know the great Bitcoin bull and evangelist Michael Saylor! […] Institutional investors do not pursue trends; instead, they expect corrections to come in and buy at an acceptable price. I hope we will hear about more and more institutional activities soon. “
David Donovan, executive vice president of Publicis Sapient – a digital transformation company – expressed to Cointelegraph his reservations about the lack of regulation, especially as investing in BTC comes with risk and volatility: “Individuals should not invest their money in bitcoin if they are not in a solid financial situation, as there is no FCID protection for bitcoins currently stored. “
JPMorgan Chase has become the latest financial giant to cautiously endorse Bitcoin by defending in a note to customers that “investors can probably add up to 1% of their allocation in cryptocurrencies in order to obtain any efficiency gains in risk-adjusted returns overall of The Portfolio. “Most would see this as an optimistic announcement; however, as the price of Bitcoin continues to fall below $ 48,000, this adds to the narrative that the influence of institutional investors in the market can be overestimated in mind the average crypto consumer.