Bitcoin is currently in the middle of a bull run. However, this bull run is driven more by institutional investors than retail investors.
The question that then follows is, what institutions are buying Bitcoin?
This article will name some of the institutions that are buying up Bitcoin. We will also explain how and why these institutions are purchasing Bitcoin.
The Institutions Buying Bitcoin
PricewaterhouseCoopers (PwC) has stated that institutions are buying Bitcoin. And some institutions and high-profile have gone on the record to say they are buying Bitcoin. Here are some of the institutions and investors buying Bitcoin.
Many suspect that PayPal started the trend of institutions buying Bitcoin when the payment processor announced they would offer cryptocurrency as a payment option on their platform. US PayPal users can also buy, sell, and hold Bitcoin on their PayPal account.
Of course, PayPal becoming a cryptocurrency exchange means that they would need to purchase a massive amount of Bitcoin. And that’s exactly what they have done.
PayPal is estimated to have purchased over 70% of all the Bitcoin mined in November 2020 – that’s likely worth multiple billions of dollars as the price of Bitcoin has risen dramatically since November.
Square is another payment processor and a competitor of PayPal. They also announced a purchase of $50 million worth of Bitcoin in October.
The difference is that Square will not sell Bitcoin or allow payment in it. Instead, that purchase was simply to pad the balance sheet.
It was an interesting move by Square and one that perplexed many in the financial world.
That said, Square owns CashApp. And CashApp has allowed users to purchase Bitcoin since 2018, so we find it unlikely that Square will turn into a Bitcoin exchange similar to PayPal.
We do expect Square to purchase more Bitcoin to fund the increasing popularity of CashApp, though.
Fidelity is a standard retail stock exchange. They do not offer Bitcoin for sale on the exchange, but they do offer Bitcoin futures on the exchange.
More importantly, Fidelity launched the Wise Origin Bitcoin Index Fund I in August 2020. As the name implies, that is a fund that holds Bitcoin.
To launch this fund, Fidelity must purchase Bitcoin. And they will continue to purchase Bitcoin as the fund increases in popularity.
The minimum investment for the fund is $100,000, which means it’s aimed at institutions and high net worth individuals. Anyway, Fidelity must purchase a large amount of Bitcoin as that fund becomes more popular.
Perhaps the most famous example of an institution purchasing Bitcoin in 2020 is the publicly traded business-intelligence firm MicroStrategy.
Basically, MicroStrategy took money from the Treasury due to Coronavirus. This was standard for publicly traded companies to stay afloat as the virus decimated business.
MicroStrategy used that money to purchase over $1 billion dollars worth of Bitcoin in December 2020, though. The average price they paid for all that Bitcoin was about $20,000.
This was an extremely aggressive move by MicroStrategy, but it has worked out well so far. And this massive purchase likely caused a huge shortage in the supply of Bitcoin, which only raised the price of the cryptocurrency.
Grayscale Bitcoin Trust
Grayscale Bitcoin Trust is another famous institutional investor in Bitcoin. This trust managed by Grayscale has been snapping up Bitcoin for the past few months as the price has risen.
The trust holds over 600,000 Bitcoin at the moment. And they reopen the trust for investment all the time, which means they are constantly purchasing Bitcoin.
In fact, the trust recently purchased about 10,000 bitcoin yesterday.
When it comes to institutional investors, Grayscale Bitcoin Trust is the largest institutional investor by a massive margin.
Why Do Institutions Buy Bitcoin?
Institutions buy Bitcoin for the same reason that retail customers buy Bitcoin – to earn a profit. The difference is that institutional investors have the ability to cause a massive spike in the price of Bitcoin by making a purchase.
Now, there are some institutional investors, like PayPal or cryptocurrency exchanges, that purchase Bitcoin because they offer Bitcoin services, but those are the exception to the rule.
Most institutions purchase Bitcoin to make money because there is no better way to make money than by purchasing Bitcoin. Especially due to the inflation risk of US Dollars and the uncertainty of the US real estate market.
How Do Institutions Buy Bitcoin?
Institutions buy Bitcoin by purchasing it over-the-counter (OTC). They do this to not disturb the short term price of the cryptocurrency.
For instance, PayPal purchased Bitcoin directly from miners. This resulted in lower fees and kept the short term market stable.
How Do Institutions Store Bitcoin?
It might surprise you, but most institutions that purchase Bitcoin keep it in custodial wallets. This is because a custodial wallet is more secure than a non-custodial wallet. It’s also insured by the custodian’s insurance.
A good example of an institution that uses a custodial, cold storage wallet is Grayscale Bitcoin Trust. All of that Bitcoin is stored in a Coinbase cold wallet. Coinbase has experience keeping wallets secure, so it just makes more sense for Grayscale to use that rather than build a security system themselves.
Will More Institutions Buy Bitcoin?
Yes, the institutions listed above are only the major institutions that have purchased Bitcoin. There are other lesser known institutions that have purchased smaller amounts of Bitcoin.
In other words, this is only the beginning of institutional money flowing into the cryptocurrency. The pattern will certainly continue as institutions begin earning a profit on their balance sheets from their holdings.
Are Institutions Buying Bitcoin Good or Bad for Bitcoin?
This is a more complicated question than it may appear at first. Institutions purchasing Bitcoin is great for the price because it reduces the circulating supply while increasing demand, which causes the price to rise.
However, institutions only get involved to make money, so it does open up the possibility that these institutions will try to muscle their way into (further) controlling the Bitcoin market.
All things considered, if you hold Bitcoin, then it’s good news that institutions are buying it because the price will increase as these institutions continue to purchase Bitcoin.
That covers it for the institutions purchasing Bitcoin. PayPal, Square, Grayscale Bitcoin Trust, MicroStrategy, and Fidelity Investments have all begun purchasing Bitcoin.
This is only the beginning. And this trend will surely continue for the foreseeable future, which is a great thing for the price of the cryptocurrency. But it remains to be seen if this will result in a system in which large institutions control the majority of the market while leaving retail investors fighting for satoshis.