The reality for the crypto industry and cryptocurrency prices in 2022 is that institutional investment has only just begun. When that happens for real, the market will suddenly and drastically revise the cryptocurrency upwards.
Without looking it up, how much money do you want to know or figure that institutional investors have switched to cryptocurrency so far? Just say bitcoin to make it simple.
A quick look around reveals a wide range of figures.
Whether it’s $6B or $70B, it’s still a fraction
But whether you go by this January 2022 Binance report that references CoinShares statistics, which says institutional investments in bitcoin totaled $6.3 billion in 2021, or this August 2021 Benzinga report, which includes crypto holding companies like Grayscale, and estimated the total institutional investment in bitcoin at the time to be $70 billion…
Institutional crypto investment still lags far behind whale-sized retail and independent investors in 2022. Institutional crypto investment hasn’t arrived until “pension funds, mutual funds, hedge funds, investment banks, sovereign wealth funds and insurance companies” start allocating to cryptocurrency (hat tip: Pat Rabbitte).
Even if institutional investors held bitcoin worth $70 billion today, with the market capitalization less than half of what it was at the time of Benzinga’s report in August, it would still represent only 17% of bitcoin’s market capitalization. If we tip institutional outflows from bitcoin pace total outflows since August, then it is less than ten percent of bitcoin holdings.
What if institutional investors inverted this distribution and held 90% of all bitcoin? How much more would each satoshi of the remaining 10% be worth?
Cryptocurrency and investors are almost ready
The global market capitalization for stocks exceeds $100 trillion to end 2020 and is currently somewhere in the vicinity of $125 trillion. Around this time last year, $61 trillion (59%) of global equities were managed by institutional investors. So the pension funds, sovereign wealth funds, investment banks and insurance giants have lagged behind the retail crowd when it comes to crypto adoption.
First, the cryptocurrency problems were the problems that cryptocurrencies solve and how they solve them. Now, institutional investors are working through inherent limitations in adopting crypto.
Funds that manage money that is not theirs for clients are more risk-averse. (But funds are becoming more interested in de-risked ways to add more outstanding returns to their trades.) They must also meet regulatory requirements. Furthermore, they must find the liquidity of an asset satisfactory. That way, they will have someone to sell it to when they want to exit their positions.
Bridgewater: The crypto market is big enough now
The crypto industry has grown and matured by leaps and bounds at this point in its development. Massive global institutional investment in crypto is now possible. The tantalizing boon it would be for holders now looms large over cryptocurrencies. Regarding liquidity requirements, a Bridgewater research note published in January 2022 said:
“We believe that Bitcoin is about 1.4% as liquid as US stocks; this would mean having a much smaller capital position in the liquid mix, but the high volatility means that a relatively small dollar allocation would still provide meaningful exposure on a risk-adjusted basis.”
Late last month, Kevin O’Leary of Shark Tank fame said that this extremely early stage of institutional cryptocurrency investing is why he’s buying the dip this year.
He pointed out in an interview that the majority of capital investment in the world is from sovereign and pension funds, and said that their allocation to crypto is still basically “zero” at this point.
Not until they adopt, O’Leary said, has institutional finance really transitioned to crypto. He said this market capitulation is an opportunity for investors to get ahead of the trend. O’Leary recommends going long crypto before funds really start moving 1% of their holdings to bitcoin.
O’Leary estimates that bitcoin’s price will double overnight once it dawns on the markets that this is actually happening. He believes this will happen by January or February 2023.
That guess might not be too bullish. Fidelity Investments will allow retirement accounts to be allocated to bitcoin later this year. The $4.5 trillion financial giant made the announcement in April.
In May, Fidelity went on a hiring spree for 200+ people for cryptocurrency developers and customer support staff to manage cryptocurrency products for its clients.
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