2020 is the year for Bitcoin bulls and the year of the “Moon” for Bitcoin as investor Mike Novogratz recently tweeted. This assertion is true taking note of the year-to-date price rally of the top traded cryptocurrencies. To analyze the sustainability of this recent run, the intent of the bulls driving this surge is worth profiling.
The price action of any asset is a function of the value and the demand attached to such an item. With Bitcoin, the premier digital asset rising by over 164% in 2020. It is glaring that many people now attach enough value to help drive this unprecedented growth.
Nevertheless, the growth observed can be transient, if it is not backed up by strong fundamentals. With institutional investors largely regarded as key to driving this current price rally in Bitcoin, the fundamentals to guarantee sustainable long term growth is worth questioning.
The Institutional Investors that Doubles as Bitcoin Bulls
A major shift was experienced in bitcoin investments as Nasdaq-listed MicroStrategy back in August announced that it has purchased 21,400 Bitcoins as part of its Capital Allocation Strategy, the entire cryptosphere went agog to celebrate the embrace. Although MicroStrategy has bolstered its Bitcoin reserves, the more its entry into space serves as a springboard for others.
Following the move by MicroStrategy, Jack Dorsey’s backed Square Inc. also pumped a $50 million liquidity into purchasing Bitcoin. The move by these firms has prompted a host of other institutional investors to embrace bitcoin holdings. Without recourse, one could think this is a bandwagon effect.
PayPal also lends its support for Bitcoin and some select altcoins as it enabled the trading of these assets in a bid to expose its over 300 million users to the emerging asset class. Moves like that of PayPal have the potential to help drive the mainstream adoption of cryptocurrencies, as is already becoming evident.
But Are These Institutional Investors Truly Bullish on Bitcoin?
The deep intentions of these players are hard to decipher, but the underlying motivation of all publicly listed companies is to maximize resources to make profits for the benefit of shareholders. Bitcoin has been around for more than a decade, the question is, why are some of these institutional investors suddenly becoming Bitcoin bulls?
One major sentiment that drove up the embrace for Bitcoin this year is the fact that it is a more active hedge against inflation in the wake of the coronavirus pandemic. As such, firms will rather turn to the asset that has the potential to make them have a healthy balance sheet in the long run.
While the underlying motive of these institutional investors is best known to them, it is ideal to understand that the primary loyalty of the supposed Bitcoin bulls lies in their profitability both in the short and long term and not to Bitcoin. This position may switch later on in the future when these players realize the potential sustainability inherent in bitcoin and other cryptocurrencies.
Either Way, Bitcoin Reigns
It should be known that the massive entry of Bitcoin bulls in the form of rich Wall Street unicorns is not what is defining Bitcoin’s value. While it may complement the strides the digital currency has been making since 2009, Bitcoin’s resilience predates the embrace of today’s institutional investors.
The fundamentals of Bitcoin are sustainable as remains evident after a decade since it made its debut in 2009. The interest of these investors is needed either way to help bitcoin usher in its proposed revolution to the financial order of the world.