Institutional investments have grown and diversified since the BTC bubble in 2017. Various investment and retirement funds based on cryptocurrencies have been created since 2017.
Although there are similarities between the bullish Bitcoin (BTC) of 2019 and the historical rise of that cryptocurrency in 2017, there are differences in the diversity and importance of the contribution of institutional investors in these scenarios.
In 2017 BTC exhibited a 1.900% of revaluation that attracted both experienced traders and many novices. However, both groups had a common goal: to get the most out of BTC as quickly as possible.
The first big difference between the 2017 bubble and the current upturn is in the degree of commitment shown by institutional investors in BTC, which has increased markedly in the last two years.
One of the two institutional investment initiatives that grew significantly in 2017 was the Grayscale Bitcoin Trust (GBTC), created in 2013, which consists of freely tradable shares, linked to BTC’s price. The cryptocurrency outperformed gold-based funds, U.S. Treasury bonds and industrial stocks in 2017.
Another driving force behind BTC’s price was the announcement in late October 2017 of the launch of futures contracts by the Chicago Mercantile Exchange (CME). BTC’s price only rebounded, since it was interpreted as the opening of large Wall Street investors to the Bitcoin market. The historical peak of BTC’s price approached USD 20,000 on December 17th, 2017, when CME launched the first futures contracts.
Winter and Recovery
In 2018, contrary to the previous year, Bitcoin lost more than 80% of its market value. However, despite the long bearish period (Crypto Winter), institutional investment initiatives did not stop.
Grayscale diversified its offer of GBTC-like funds, based on Ethereum and Zcash, and also launched a fund based on several crypto currencies. In May 2019 alone, the GBTC fund accumulated more than 220,000 BITCOINs, equivalent today to USD 2.4 billion, about 1.3% of that cryptocurrency’s working capital.
In contrast to crypto winter, there is a sustained growth boom of the GBTC fund showing the number of BTCs in Grayscale’s custody over the past 24 months.
A recent report of J. P. Morgan estimates that in mid-June there was an estimated aggregate volume of USD 12 billion CME and Cboe futures contracts, representing a jump from USD 5.5 billion in April and a monthly average of USD 1.8 billion.
Morgan concludes that the importance of Bitcoin futures has been underestimated. Precisely, its current strength is key for Bitcoin in this bullish rally, but its relative weight is greater in 2019 than it was in 2017.
Another important institutional initiative is the announcement by Bakkt, a foreign exchange house belonging to ICE Futures, of the launch of Bitcoin futures for July 2019. The firm is already valued at USD 700 million even before starting operations.
Although there are already retirement funds based on Bitcoin and other crypto currencies, Bitcoin IRA recently announced the expansion of its portfolio of services with a self-management option, so that account owners can have full control over their funds.
Another difference between the two Bitcoin bullish scenarios in 2017 and 2019 is that this year Bitcoin revealed itself virtually immune to the negative news of the SEC’s intervention, regarding the constant delays to its decision on the requests for Bitcoin ETF approval, which influences the strengthening of confidence around the pioneering cryptocurrency.
By Willmen Blanco