Covering the price of Bitcoin is like trying to write about a NASCAR race. The big picture can change in a matter of moments.
Following a record-shattering 2020, however, one thing about the past year is clear: Institutional investors had a serious change of heart about cryptocurrency. In a matter of months, serious participation in the space officially transformed from mostly private individuals to speculators on a much larger scale.
Recent crypto investments make this clear: Billionaire investors have expanded their portfolios to bring Bitcoin into the fold, and they’re not being shy about it. Hedge fund manager and philanthropist Paul Tudor Jones has made it known that bitcoin is now 1% to 2% of his multi-billion-dollar portfolio. Meanwhile, another billionaire investor, Stanley Druckenmiller, revealed that he also now owns bitcoin, telling CNBC that “with each passing day it picks up more stabilization as a brand.” This reversal follows comments he made in 2018 stating that he “didn’t want to own bitcoin.”
Public companies have jumped into BTC too. Square exhibited good timing by purchasing 4,709 bitcoins in October 2020 when the average BTC price was $10,618 – a $50 million investment at the time that has surged considerably since then. The business intelligence company Microstrategy went even further with a $1 billion+ bitcoin investment in 2020, bought in installments at average purchase prices of $15,964 and $21,925 respectively. (Bitcoin’s price was $28,739 at the time of this writing.)
These two high-profile investments have led an ever-expanding pack of publicly traded companies, trusts, and funds to come off the sidelines and binge on BTC. Depending on the charts you consult, these deep-pocketed players may be holding anywhere from .78% of the Bitcoin market share to as much as 7.3%. Like the price, of course, these metrics could see rapid churn, all depending on the day that you check.
Eye on the Drivers
It appears that the transition to crypto’s “institutional adoption”—a milestone long yearned for by those who view it as an investment vehicle above all—is now well under way. But why now?
Theories for the elevated status of certain cryptocurrencies, Bitcoin in particular, are as plentiful as altcoins. Just a few include:
- Ongoing quantitative easing by central banks into the trillions of dollars, spurred by the global COVID pandemic, has made Bitcoin more attractive than ever as a hedge against inflation.
- Along those lines, many investors see bitcoin as a better safe haven against dollar risk than the previous standard, gold, thanks to its scarce-by-design supply (only 21 million bitcoins can ever be minted) and usefulness as a store of value outside of the traditional banking system.
- PayPal’s decision to enable crypto custody and trading for its users (via a partnership with Paxos), while aimed at individual users, may have added an additional aura of legitimacy that resonated with institutional investors.
- Increasingly adept governmental regulation of the space is gradually diminishing the “Wild West” reputation that has dogged cryptocurrency up until now,
Dipul Patel is CTO of Soluna, a company applying renewable energy to data center computing and a strategic partner to the renewable energy crypto mining firm EcoChain Mining. According to Patel, the compound effect of the above factors—and many more—has been key to finally making traditionally conservative large investors comfortable with crypto.
“While investment managers want to focus purely on innovation, they are usually driven more by their investment mandate which prioritizes downside protection,” he says. “As a result, huge investors with lots of assets under management (AUM) do a great deal of due diligence. When they finally make their decision to enter a new space, like Bitcoin, they go all in.”
Patel points to the concept of “infrastructure inversion,” a phrase first coined by Bitcoin evangelist Andreas Antonopoulos as playing out before our eyes in the current environment. A key indicator of disruptive change, it happens when new infrastructure is built for a disruption but then becomes the platform for the old technology it is replacing.
John Belizaire, CEO of Soluna, explained infrastructure inversion’s impact on banking this way. “Antonopoulos believes that as killer applications (like e-commerce, or social media did for the Internet) emerge they will ignite an inversion in finance. First, the banks will resist, then they will go along with it, and then they will run all of their traditional operations on Satoshi’s distributed ledger technology. This view has sparked a global dialogue on the role of Bitcoin and its ability to transform the financial services industry.”
For Patel, the institutional inflows to BTC are infrastructure inversion in action. “When you see big investors and publicly traded companies changing their thinking on blockchain and investing in bitcoin, you realize that the risk has been reduced,” he observes.
A Positive Cycle for Environmental Mining
As the fundamental process for bringing bitcoin and other Proof of Work cryptocurrencies onto the blockchain, the trajectory of crypto mining has direct connections with the space’s institutional uptick.
“When you see larger investors coming into Bitcoin, then more companies and people adopt the technology, and the need for computing and infrastructure go way up,” says Patel. “Next you see bigger participants come in who need scale. What we’re seeing at EcoChain is increased demand on the compute side, which allows us to match them with grids that need to move large amounts of energy. A network with a large bitcoin mining operation is a valuable customer to them.”
In turn, the expanded presence of institutional investors can help environmentally minded crypto innovators like EcoChain make a faster impact. “Because of these larger crypto inflows, we’re now able to facilitate our mission of connecting computing to green energy,” Patel says. “As the major investors come in, demand for crypto escalates, and green energy can become even more affordable and abundantly available to miners. The dominos are falling, and the decentralized world is drawing closer.”
– EcoChain Mining