While the theater world has Waiting for Godot, the crypto sphere has its own drama: Waiting for the Institutional Investor. Recently, there have been some promising sightings. Grayscale Investments has been buying up Bitcoin (BTC) at a great rate in recent months.
Indeed, since the May 11–12 rewards halving event, the fund has been accumulating BTC at a rate equivalent to 150% of all the new Bitcoin mined, Cointelegraph reported on Thursday. The firm now has $3.2 billion in assets under management, or AUM, in its Grayscale Bitcoin Trust. Significantly, more than 90% of new inflows are from institutional players, according to the company.
Grayscale may not be alone in attracting institutional attention. Eric Ervin, the president and CEO of Blockforce Capital, an asset management firm that operates in the crypto space, told Cointelegraph: “We are seeing more institutional interest. I think this would be true regardless of the halving or the QE taking place, even more so given the unprecedented fiscal and monetary global stimulus.”
Lennard Neo, the head of research at Stack Funds, told Cointelegraph that institutional investors have been looking for alternative solutions not just to provide returns but also to protect their existing portfolio from further downside risks, explaining:
“Similar to Grayscale, Stack has seen an uptick in investors’ interest — almost double that figures of pre-crash in March — in Bitcoin […] I would not say they are ‘gobbling up BTC’ blindly but cautiously seeking traditional structured solutions that they are familiar with before making an investment.”
Paul Cappelli, a portfolio manager at Galaxy Fund Management, told Cointelegraph: “We’re seeing increased interest from multiple levels of investors — wealth channels, independent RIAs and institutions.” The recent BTC halving came at an interesting time — amid the COVID-19 outbreak and the growing unease about quantitative easing. He noted: “It clearly demonstrated BTC’s scarcity and future supply reduction as concerns deepened around unprecedented stimulus by the Fed with the CARES Act.”
Not all are knocking at Bitcoin’s door, though. In a May 27 presentation to investors, Goldman Sachs, the storied investment bank, listed five reasons why cryptocurrencies are not an asset class, which included Bitcoin, noting: “While hedge funds may find trading cryptocurrencies appealing because of their high volatility, that allure does not constitute a viable investment rationale.”
Crypto’s denizens reacted combatively. Referencing the quality of Goldman Sachs’ recent Bitcoin research, Gemini’s Tyler Winklevoss declared in a tweet: “Today, Wall Street is where you end up when you can’t make it in crypto” — and he followed up on May 28 with: “Day after Goldman Sachs says don’t buy bitcoin, bitcoin is up $500.” Mati Greenspan of Quantum Economics wrote in his May 27 newsletter: “Regardless of what Goldman Sachs sell-side analysts have to say, it’s quite clear that institutional interest has been picking up lately.”
On the matter of investment suitability, a recent Bitwise Asset Management research report made the case for adding Bitcoin to a diversified portfolio of stocks and bonds, noting that on average, “a 2.5% allocation to bitcoin would have boosted the three-year cumulative return of a traditional 60% equity/40% bond portfolio by an astonishing 15.9 percentage points.”
In the roughly two-week period since the BTC rewards halving, which reduced miners’ block reward from 12.5 BTC to 6.25 BTC, 12,337 Bitcoin were mined as reported by researcher Kevin Rooke on May 27. During that same period, Grayscale’s Bitcoin Trust purchased 18,910 Bitcoin — about 1.5 BTC for every Bitcoin created. This has raised some questions about the overall BTC supply.
Binance CEO Changpeng Zhao commented on Rooke’s findings in a tweet: “There isn’t enough new supply to go around, even for just one guy [i.e., Grayscale].” Greenspan, for his part, told Cointelegraph: “It seems like institutional players are gradually becoming a much larger part of this small market.” Might they overwhelm the market? “Whales have always been an issue,” he opined.