Why Bitcoin needs institutional investors to achieve mass adoption
Petr Kozyakov of Mercuryo.io shares his thoughts on the recent surge in institutional interest in Bitcoin.
The bear market of 2018 has disrupted the market, forcing many projects out of the industry.
The growing institutional activity in crypto is not exclusively accompanied by alternative investments.
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Petr Kozyakov, co-founder and CBDO of the international cryptographic payment solution Mercuryo.io, shares his thoughts on the recent surge in institutional interest in Bitcoin and its possible impacts on the digital asset market.
It’s official: 2020 is the year of institutional investments in crypto, including Bitcoin. And for good reason.
Digital asset funds have seen record inflows into their products, while large companies hold a significant share of the outstanding supply of Bitcoin (BTC).
But what is behind this phenomenon and how will it affect the maturing crypto market?
Secure assets do not meet investors‘ expectations
Even in the pre-pandemic period, low-risk instruments in the general market generated disappointing returns for investors.
Examples include savings accounts and high quality government bonds, the latter currently producing a modest return of 0.86% for 10-year US Treasury bonds and 0.32% for 10-year UK Gilts.
In the worst case scenario, high quality bonds such as German Bunds provide negative returns to investors, even with maturities of 10 or 20 years.
Even if a safe investment offers investors returns, the gains are so small that they will be eaten up by inflation.
Institutional investors will replace gold with bitcoins
While individuals can „afford the luxury“ of generating very low or negative returns, institutional investors must meet the return expectations of their stakeholders.
This is why, when the general market is disrupted and safe assets perform poorly, institutional investors must seek alternative investments to increase their returns.
Gold, a safe-haven asset that is generally thought to generate good performance in times of uncertainty, is one such instrument that institutional investors have been turning to since March. However, gold’s bullish run ended in August and the asset has been in decline since then.
On the other hand, Bitcoin has been steadily increasing since the stock market crash in March. Currently trading above $19,500, digital assets are very close to their record level of $20,000, which they only briefly touched before the devastating crypto winter of 2018.
On top of that, the total supply is capped at 21 million BTCs, while introducing a built-in mechanism called „halving“ or „halving“, which halves the number of corners coming into circulation every four years. The goal is to combat inflation and ensure a long-term increase in the value of digital assets.
As a result, with year-to-date growth of more than 160% and a level of volatility that is almost always low, Bitcoin has become an attractive safe haven asset for institutional investors.
At the same time, recent reports from leading investment banks, such as Deutsche Bank and JPMorgan, confirm the same phenomenon, indicating a shift from gold to Bitcoin among institutional investors.
Why this Bitcoin bull run is different
People often fear that this year’s bull run for Bitcoin will end with the same disastrous consequences as the previous crypto push in 2017.
In 2017, FOMO, media craziness and speculation were the fundamental drivers of the cryptomoney market’s bullish trends.
At the time, the industry was very lightly regulated and it was sufficient for digital asset projects to raise a record amount of funds with only a concept or semi-finished product.
In addition, the market was mainly driven by retail investors with varying levels of experience and knowledge of cryptomoney (and money markets) who were willing to put money into one of the hottest ICOs.
This time, however, things are very different.