Bitcoin is in fashion these days. Three years after it traded close to $20,000, it made a new all-time high. Coincidence or not, just like in 2017, it made a new all-time high in December.
We all know what happened after December 2017 – the leading cryptocurrency lost over 80% of its value. For this reason, many long-term and institutional investors dismiss Bitcoin as no store of value should have such fluctuations.
Therefore, the digital currency appeals more to retail traders than institutional investors. Yet, more signs are on the market that the institutional community sees Bitcoin as an alternative to gold. I am not talking here about PayPal, Square, or MicroStrategy, which announced investments in Bitcoin. Instead, of even bigger names.
Guggenheim Fund Reserves Turns to Bitcoin
In a recent announcement, Guggenheim Fund Reserves points out that it looks at Bitcoin and the cryptocurrency market as a potential market to invest in. One of its funds, the $5.3 billion Macro Opportunities Fund, is reserving the right to invest in the Grayscale Bitcoin Trust. In turn, Greyscale’s shares are invested in Bitcoin, making Guggenheim’s exposure to Bitcoin an indirect one. Yet, for such a big institutional investor to reserve the right to invest in crypto tells much about the reasons behind Bitcoin making a new all-time high.
More precisely, the institutional investor plans to invest up to 10% of its assets to cryptocurrencies, Bitcoin in particular. This exceeds by far the $150 million invested by MicroStrategy or the $50 million announced by Square.
However, why would Guggenheim turn to Grayscale to gain exposure to Bitcoin? The answer is quite simple – there are not enough Bitcoins to buy.
Few traders are aware that 4.11% of addresses own 96.53% of all Bitcoins. This is remarkable and scary at the same time.
Remember that this is an unregulated market. With all those Bitcoins in the hands of a “few”, the rest of the investors remain exposed to market manipulation.
Bitcoin’s rise in 2020 has been nothing short of spectacular. The increased adoption from public companies puts a bid behind its price.
Yet, it still experiences extreme volatility. Last week, right on Thanksgiving, it dropped 13% in less than fourteen hours. This week it did something similar right after posting a new all-time high.
While the gains may be attractive, this kind of behavior makes it fairly easy for the 2017 history to repeat. Bitcoin needs to avoid such extreme moves if it wants the institutional investor’s community to pay more attention. On the other hand, it is difficult to do so with so many coins in the hands of a few.