While bitcoin has long been touted as the crypto equivalent to gold- an asset prized for its near recession proof solidarity, institutional investors have long seemed hesitant to really dump all of their confidence (or their money) into bitcoin. However, a new report suggests that more institutional investors than ever are beginning to invest in bitcoin for the long-haul. Using the famed crypto as a hedge for other legacy investments.
Bitvavo, a crypto exchange built on the premise of helping retail investors make better investments and understand crypto markets, has reportedly seen a surge in high-volume, long-term trading. Suggesting that retail investors aren’t the only players practicing the long championed HODL. Seeing more open-interest on exchanges than there is trading volume at any given time suggests that institutional investors are definitely buying, but are less inclined to selling.
Bitcoin as a Safe-Haven Asset
More than being a safe haven asset, one that is used to secure less stable assets- bitcoin futures have seen increased interest as well, showing renewed vigor for institutional money. This new institutional long-term interest in bitcoin futures can help indicate a more stable market in the future. Which, as the crypto is currently trading near the $20,000 mark, means that these high values could stay with us for the long term.
Which will only serve to increase these varied interests in bitcoin, as it is one of the most stable markets to come out of the 2020 Q1 market shakeout. Because of bitcoin’s decentralized nature, it is rare that the coin fluctuates based on the health of centralized banks. Making it the ideal hedge against fiat markets. This becomes ever more present as a possibility as historical market fluctuations dull. While prices are still volatile enough to hold the interests of day traders, the prices are also stable enough to draw institutional interest and retail hedge confidence.
Bitcoin has long had an impressive ROI when held long term, often better than that of many legacy market favourites. As the coin outperformed even huge names in the marketplace, like Amazon and even Apple, this year. With a long-standing juicy ROI, many institutional investors are finally capable of having the confidence needed to see bitcoin as an ideal safe haven asset.
Market Scarcity and Network Security
The foundational monetary principles of bitcoin are the main reasons why the coin has performed so well, and continues to draw attention and hold interest. Currently, in such a way that bitcoin has inspired far more confidence than most fiat markets. This is largely because of the quantitative easing methods that many governments and centralized banks were forced to deploy in the wake of coronavirus shutdowns and the resulting economic crash.
Where most traditional markets rely heavily on economic stimulus, bitcoin gains its value through a more basic economic principle- the concept of supply and demand. Bitcoin has what’s called “artificial scarcity”, similar to the diamond industry. Where there is only a finite amount of bitcoin in existence- 21 million BTC to be exact. These coins are dolled out at a given rate through bitcoin mining, freshly minted as “block rewards”. There is no way to artificially produce bitcoin, which means it cannot fall prey to inflationary practices.
Specifically, as more investors look to bitcoin as a long-term investment, market liquidity becomes locked up, making even the trickle of newly minted coins incredibly valuable- i.e. scarcity. So as demand increases, supply cannot. The rate at which coins are minted, and the amount of them that exist- can never be changed, meaning that this rarity and continued use case scenario for bitcoin, spell a solid future of value.
Why Institutional Traders Love Bitcoin
Perhaps because bitcoin is so well thought out, and completely non-manipulatable, investors can have more confidence in its future. We all know exactly how much of it there is, exactly how much of it will be minted, the only things left to chance are continued public interest– of which there seems to be no short supply.
Particularly as futures, DeFi, and Fintech continues to grow and complete bitcoin’s long searched for allegory to fiat. Showing that cryptocurrency can absolutely become a better system of finance, and one that is worth getting in on at ground floor. As more large trusts, like the Grayscale Bitcoin Trust, continue to pump investments into bitcoin, and more bitcoin is being locked up and scooped up, suggests that the future of bitcoin isn’t just bright and golden, but also rock solid.