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Institutionalisation of Bitcoin seems to have started; up 220% in 2020
Bitcoin has almost tripled this year, rising nearly 220 percent on a year-to-date basis, after losing 25 percent in March amid the coronavirus outbreak.
Such a robust rally has piqued investors' interest in the cryptocurrency and the currency has also become investible for institutions.
Jefferies informs that in mid-August and September invested in the Bitcoin equivalent of $425 million.
Pranati Deva
If 2020 has been the year of COVID-19, it has also been the year of Bitcoin. Bitcoin surpassed $23,000 for the first time in what's been an astounding rally for the digital currency.
It has almost tripled this year, rising nearly 220 percent on a year-to-date basis, after losing 25 percent in March amid the coronavirus outbreak.
Jefferies' GREED & fear report stated, "Bitcoin has become investible for institutions with custodian arrangements available and with prominent investors and indeed institutional investors declaring that they have bought it. In this respect, Bitcoin has now become part of the system with opportunities also for retail investors to buy into it."
It noted that this is important because before such arrangements were in place, there was always the risk that Bitcoin accounts could be hacked. Another risk the report mentioned was was that Bitcoin would be declared illegal because it was used for nefarious purposes, such as illegal narcotic transactions.
Jefferies informs that in mid-August and September, a Nasdaq-listed MicroStrategy, a business intelligence software company, invested in the Bitcoin equivalent of $425 million amounting to almost 100 percent of its own treasury funds, to hold on its balance sheet.
This move was approved by the US US Securities and Exchange Commission (SEC). The aim is to make Bitcoin "the primary treasury reserve asset on an ongoing basis", along with cash and short-term investments, a company's official said.
Later, in early December, MicroStrategy invested a further $50 million in Bitcoin in early December, with a cumulative holding of 40,824 Bitcoins.
This marks a watershed moment in GREED & fear's view since the auditors approved MicroStrategy putting Bitcoin on its balance sheet as did the SEC, Jefferies said.
It further observed that since announcing its investment in Bitcoin, the company's market capitalization has risen by 131 percent to $2.77 billion and the value of its Bitcoin holding has almost doubled to $917 million.
As the institutionalization of the cryptocurrency is starting, Jefferies argues that Bitcoin is "destroying gold's value proposition".
Gold investors will now have to face the real peril that risk-averse capital, which would have otherwise gone to gold to hedge the paper currency debasement in the G7 world, will now go to Bitcoin.
However, Jefferies does not advise giving up on gold yet. It noted that the yellow metal should rally again if the Fed stays dovish in the face of the dramatic cyclical recovery that is coming on the other side of the pandemic.
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