Organizational push can be overestimated

In the history of financial markets, only a handful of tradable assets have conquered this border. Currently, Bitcoin has the 8th highest market cap among all tradable assets in the world, including stocks and commodities. Among the top 10 exchangeable assets, BTC ranks right above Tencent after skyrocketing past the $ 1 trillion mark, below Facebook, which took the throne earlier this month.

Bitcoin is only one step away from surpassing Google and two more steps beyond silver. Considering the history of commodities like silver and gold that have been traded for centuries now, Bitcoin’s history is extremely short, only starting in January 2009. Even stocks like Google and Tencent have a history of more than two decades, while Apple and Microsoft have more than four decades.

Was Bitcoin’s latest bullish move natural?

When analyzing when Bitcoin finally crossed this mark, it was clear that there was no major announcement from the institutional community that led to a spike in market cap. The Coinbase Bitcoin Fees Index of online data provider CryptoQuant (high spreads demonstrating strong spot purchases on Coinbase) shows that at the time when this breakout occurs, the arbitrage fee Coinbase’s is negative.

Bitcoin Difference Fees on Coinbase | Source: Ki Young Ju

CryptoQuant CEO Ki Young Ju explained:

“Purchasing power seems to come mainly from retail investors and stablecoin whales, not institutional investors or high net worth individuals in the United States.”

Bitcoin finally broke the $ 1 trillion market cap on Feb. 19, tripling in just 3 months. This milestone comes almost a year after falling below $ 100 billion on March 12, 2020, commonly referred to as “Dark Thursday” in the crypto community.

It is important to consider the actual proportion of BTC in the circulating supply before assuming the price effect of Bitcoin volume. According to research from Glassnode, 78% of Bitcoin’s supply is illiquid, so it implies an asset’s supply and demand economy is only a small aspect that affects price.

Fortunately, or unfortunately, for the market, Bitcoin’s price is still largely dependent on sentiment. This is evident in the fact that Robinhood acquired more than 6 million retail crypto investors this year alone.

Bitcoin’s liquidity and illiquid supply | Source: Glassnode

While acknowledging the overall presence and influence of institutional investors, OKEx exchange CEO Jay Hao affirmed the Twitter trend could contribute to pushing capital to $ 1 trillion:

“This crazy trend has both Elon Musk, Michael Saylor and Senator Cynthia Lummis, maybe they helped BTC break its $ 1 trillion market cap without any final push from institutional investors who generally don’t buy when the market is under extreme stress. At this point, many technical indicators show that BTC has started to overbought as retail traders jumped in, noticing multiple $ 100K BTC predictions across Twitter, including top CEOs and politicians. “.

Institutional involvement in Bitcoin can be overestimated

According to venture capitalist Brock Pierce, institutional involvement can actually be “overestimated” but it still has evidence of their long positions:

“There is a mix of retail and institutional as well as other factors driving the market higher. In terms of on-chain indices, we are seeing a large amount of Bitcoin leaving exchanges and miners are reluctant to sell too – both with the aim of reducing supply and reducing any selling pressure in the market.

He added that companies are adopting “programmatic buying” when they try to achieve a certain allocation. Furthermore, as pointed out by both Pierce and Hao, market sentiment often causes retail investors to get involved, thereby causing massive price volatility in the BTC market.

Ju recently pointed out on Twitter that popular miners often have separate wallets from their mining wallets; therefore, their strength may be greater than what the on-chain analysis might suggest. He further clarified the implications this could have on Bitcoin price:

“Affiliated miners (whales) seem to sell Bitcoin on exchanges, not through OTC. They have a different personal wallet than a mining wallet, so it’s important to watch trends, not an absolute number. Significant cash outflow occurred when the price reached $ 58k and it cooled down recently.”

BTC: Total cash outflow of miners | Source: Ki Young Ju

Organizations continue to buy discounted prices?

After Bitcoin crossed the $ 1 trillion mark, it quickly hit an all-time high of $ 58,352 on Feb. 21. But the very next day, the price of BTC plunged 20% along with several other assets during a correction now commonly referred to as the “Bloody Monday” in the crypto community. Its price continues to trade between 45,000 and the previous $ 50,000 support.

During this decline, it seems that institutional investors have given the green light to buy in in bulk. Jack Dorsey’s Square bought another batch of Bitcoin, about 3,318 BTC for $ 170 million. Square first bought Bitcoin in October 2020, amounting to 4,709 Bitcoins for around $ 50 million with an average price of $ 10,618 per BTC. Square’s momentum in the second round of investment can be driven by the fact that their return on the first round of investment is around 400%.

Outside of Square, Michael Saylor’s MicroStrategy bought additional $ 1 billion worth of Bitcoin, or 19,452 coins, for an average price of $ 52,765. This investment in Bitcoin comes just 6 months after an initial investment of $ 250 million in August 2020.

Currently, MicroStrategy owns more than 90,000 BTC, accounting for 63% of the total market capitalization. Saylor announced that MicroStrategy “is still focusing on two strategies to grow the business of enterprise analysis software and to buy and hold Bitcoin.” Hao commented on buying BTC:

“Offering MicroStrategy debt and buying another $ 1 billion in BTC after that was a huge announcement, despite how much we know how Michael Saylor is an evangelist and a giant Bitcoin bull! […] Institutional investors are not chasing the trend, but instead wait for a correction to occur and buy at an acceptable price. I hope we will soon hear more about institutional activity ”.

In contrast, David Donovan, executive vice president of Publicis Sapient – a digital transformation company – expressed reservations about the lack of regulation, especially that investing in BTC comes with risks and volatility. :

“Individuals should not invest their money in Bitcoin if it is not in good financial condition because there is no FCID protecting Bitcoin stored at this time.”

JPMorgan Chase has become the most recent financial giant to cautiously confirm Bitcoin by backing in a client note that “investors can add up to 1% of their allocation to money. electronic to achieve any effect in the portfolio’s risk-adjusted overall return”. Most will consider this a bullish announcement; however, as the price of Bitcoin continues to struggle below $ 48,000, it adds to the story that the influence of institutional investors on the market could be overestimated in the minds of crypto users.

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