Someone asked me this question on Quora, and, this is a very interesting topic and a valid question, which I’ll happily (partially) answer for you.
The short answer, TLDR, is: YES. Institutional will start buying into Bitcoin and they actually have been buying into Bitcoin. As for altcoins, probably less so (especially short-term) as Bitcoin is considered the true store of value here and is most trusted by these large institutional investors.
The longer answer:
The past few months BTC has seen a massive price surge from $4,000 in March to $19,500 (almost the all-time high level) just this past week.
This means that anyone who purchased (currently) BTC at a price of $18,500 or lower at the moment is in profits! Which is huge! And, anyone who has been dollar-cost averaging (on a monthly basis) has seen massive returns on their ‘investment’ the past year.
However, this move is feeling completely different from 2017. There is pretty much no euphoria, BTC hasn’t really been on the news and search traffic for ‘Bitcoin’ or ‘Cryptocurrencies’ or gas prices are nowhere as high as in 2017. Why is that?
The answer to this has to do with your question. What we’ve been seeing here the past few months is institutional investors getting in. It’s them purchasing these Bitcoins, not retail investors (the average Joe). Making this move completely different and more sustainable (in my opinion).
Why do I think this price surge is more sustainable?
Now, I’m not saying BTC won’t retest $14,000 and immediately break out above $20,000. But, I am going to say that I feel this is more sustainable because these institutional investors are creating FOMO (the fear of missing out) feelings among each other.
They see their competitors purchase BTC, they see BTC becoming more scarce and it’s only going to get more scarcer as time passes and another block halving comes. This will further increase buy pressure and decrease sell pressure.
It’s more sustainable because retail investors are less predictable and tend to trade more on an emotional level. They will panic sell at 10–20%+ losses and take profits at +10–50%. Whereas institutional investors see the big picture, which is the long-term price expectations for BTC and decreasing supply.
Governments and newly mined BTC
It’s becoming very clear BTC isn’t going anywhere. Cryptocurrencies aren’t going anywhere. There’s talks of banks and governments creating their own digital currencies, because they realize the potential and benefits blockchain technology has. In my opinion, the higher the price of BTC, the higher the chances of seeing actual adoption of BTC and seeing it being spent. The ultimate shift would be where we start talking about satoshi, not whole bitcoins, as there still is this emotional barrier of purchasing a full Bitcoin for >$20,000.
I do however see some ‘danger’ in institutional investors coming in. They are purchasing almost all of the newly mined BTC supply, meaning that the number of new hands BTC is flowing into decreases and a large number of BTC will be in a concentrated number of hands. However, long-term these institutional investors will also take profits. This might well be positive for people who are already holding BTC.
Why Bitcoin, why not altcoins?
The above pretty much sums up what’s currently happening around Bitcoin. But, are institutional investors buying altcoins?
In my opinion, the past few months we’ve seen them purchase bitcoin, but not altcoins. I also believe altcoins will mainly remain something to be bought by retail investors rather than institutional investors because of the following:
- Bitcoin is considered the store of value, altcoins are not.
- Altcoins bring in additional risk factors, such as: The project team (exit-scams, experience, execution), (lower) liquidity, different supply models, etc.
Looking at the above chart, I do strongly believe bitcoin dominance will go down over the next quarter. In an actual (retail) bull run we could well see bitcoin dominance around 49% or even 39%, which is where altcoin profits should be taken and we could well see the huge returns we’re all looking for.
However, if a lot of institutional investors continue to purchase BTC and BTC continues to surge, we could well see BTC dominance go up to well above 75%. In that scenario, BTC should split from cryptocurrency and be considered it’s own class next to gold, stocks, etc. - where ETH might well be the new ‘leader’ of the altcoin market and dominance of altcoins is measured against ETH.
Recent media coverage on this topic:
- Coinbase Sees More Institutional Investors Buying Bitcoin in H1 | Exchanges Bitcoin News
- More Institutions Are Buying Bitcoin, Say JPMorgan Analysts - CoinDesk
- Institutional investors plan to buy every Bitcoin price dip, data suggests
Has this post helped you? What are your comments on my thoughts? Let me know in the comments. Or, follow me on Twitter to stay updated about my thoughts at all times!
This post is for informative purposes only, I’m not a financial advisor and I currently have a position in BTC. I have not been paid for this post, this post is out of personal interest.