VYSYN VENTURES Weekly Insights #30
Another week. Another repertoire of bullish developments for Bitcoin. Bullish developments may understate the mounting optimism for the original cryptocurrency. Current institutional BTC hodlers have increased their exposure while others have entered the game for the first time. On top of that, Bitcoin has been recognized by a prestigious academic paper. The research paper caught on to the fact that the asset may not be a useless waste of energy.
With only so much BTC to go around, the Bitcoin price will be forced to rise to account for the greater demand flowing in. In the latest VYSYN Ventures release, we highlight some of the latest institutions that are securing exposure in BTC. We also estimate the quarterly Bitcoin market size and highlight other salient developments.
Institutions Pile into BTC
It has been another extremely bullish Bitcoin week from the institutional investor side. On December 4th, MicroStrategy invested another $50 million into BTC. This investment brought their total allocation to $475 million with holdings of 40,824 Bitcoin. At the time of writing, the value of these BTC are almost $300 million greater than the purchase price!
Other institutions are entering the market for their first time. Australian investment management firm Pendal Group invested in Bitcoin after extremely high demand from clients. One of the firm’s heads – Vimal Gor – was quoted stating “Bitcoin is superior to gold”.
The most bullish entry of the week must be the $100 million investment from 169-year old insurance company MassMutual. The firm purchased Bitcoin for its general investment fund. The purchase accounts for just 0.04% of their $235 billion investment account. A spokesperson noted that the firm views the investment as a “first step” and “may explore further opportunities”.
Bitcoin Quarterly Market Size Estimate
The above institutions are only a small sample of the existing investors and new entrants that are securing exposure to Bitcoin. Add retail investors, HNWIs, and private institutions on top of that and the pool of capital easily piles up.
As noted by the late Matt D’Souza, “new capital in and capital out is what really moves the markets”. With a limited issuance, fresh capital is forced to secure Bitcoin from existing holders.
We can estimate the quarterly value changing hands by analyzing the price of Bitcoin compared with the number of BTC changing hands over a three-month period. Over the past three months, 22.37% of the Bitcoin circulating supply changed hands.
(Source: Glassnode Studio)
When compared with the 18.56 million circulating supply, this represents roughly 4.15 million BTC. At a 90-day average price of $14,286, roughly $59.2 billion has changed hands over the past three months.
While this may seem to be a significant market, $5 trillion in cash sits on the balance sheets of US publicly traded companies. The value of BTC traded over the past 3-months is approximate to roughly 1% of the cash that currently sits on US public companies.
Envision the monstrous impact on Bitcoin price if it becomes conventional for publicly-traded firms to hold BTC. Such an investment trend would also be a global phenomenon, further expanding the potential capital inflow.
Bitcoin Gains Increased Recognition
During the week, Bitcoin also secured increased recognition with a mention in a prestigious academic journal. The paper noted that Bitcoin delivers a “highly liquid global market” and also detailed some of the upsides of Bitcoin mining.
The energy debate in Bitcoin mining is extremely nuanced. Some regions are favourable for miners securing long-term low-cost electricity rates from fossil fuels while others allow miners to secure competitive electricity rates from regions where vast amounts of renewable energy is generated.
Stabilizing grids during times of peak demand has been noted as another use case for Bitcoin mining machines. The paper noted that “the demand for renewable energy could be increased, and the pace of climate change decreased, by stabilizing the grid during periods of peak demand or peak supply and by guaranteeing minimum selling price at all hours.”
Square – an institution which invested $50 million into BTC this year – also launched an investment initiative targeted at firms driving renewables adoption in Bitcoin. The initiative dedicated $10 million to investing in Bitcoin mining firms that are accelerating the use of clean energy in the Bitcoin ecosystem. Square CEO and co-founder Jack Dorsey foresees cryptocurrency being entirely powered by renewable energy in the future.
Bitcoin Market Drops to Establish Healthier Demand
In last week’s release, we analyzed the Bitcoin market from a technical perspective. We noted that dwindling volume and perpetual derivatives contracts trading at a premium increased the odds that a significant price pullback would ensue. Following the article, the price of Bitcoin did drop from roughly $19k to ~$17.6k.
The price has since recovered to ~$19k. Upon reaching $19k, the derivatives premium has returned and volume has also remained low in the spot market. This makes short-term price prospects uncertain for Bitcoin.
However, in the longer-term, conditions could not be more bullish. Institutions have been increasingly getting exposure with every entrant scrambling after a limited supply. Retail that enters the market now will likely have the chance to sell their BTC to institutions at a value which is multiples higher in the future.
This combined with the fact that Bitcoin is receiving more recognition in the mainstream press and academia creates a perfect storm for the asset. Investing in Bitcoin will become easily justifiable to new institutions as their peers get exposure and as academic papers acknowledge the merits of the network.