The Impact of Institutional Investors on Bitcoin

For years, Bitcoin enthusiasts have been expecting a significant change in value due to the involvement of institutional investors. The concept was simple: as companies and large financial entities invest in Bitcoin, the market will experience explosive growth and a sustained period of price growth. However, the actual outcome was more complex. Although institutions have indeed invested substantial capital in Bitcoin, the anticipated “supercycle” has not played out as predicted.

Institutional accumulation

Institutional participation in Bitcoin has grown significantly in recent years, marked by substantial purchases from large companies and the introduction of Bitcoin Exchange-Traded Funds (ETFs) earlier this year.

Figure 1: Bitcoin Company Treasury Holdings. Go to live chart 🔍

Leading this movement is MicroStrategy, which alone owns over 1% of the total Bitcoin supply. After MicroStrategy, other prominent players include Marathon Digital, Galaxy Digital and even Tesla, with significant stakes also found in Canadian firms such as Hut 8 and Hive, as well as international companies such as Nexon in Japan and Phoenix Digital Assets in the UK; all of which can be tracked via the new Treasury data charts available on the site.

Figure 2: Detailed analysis of BTC treasuries for publicly traded companies. Go to live chart 🔍

In total, these companies hold more than 340,000 bitcoins. However, the real game changer was the introduction of Bitcoin ETFs. Since their inception, these financial instruments have attracted billions of dollars in investment, resulting in the accumulation of over 91,000 bitcoins in just a few months. Together, private companies and ETFs control about 1.24 million bitcoins, representing about 6.29% of all bitcoins in circulation.

A look at recent Bitcoin price movements

To understand the potential future impact of institutional investing, we can look at recent Bitcoin price movements since the approval of Bitcoin ETFs in January. At the time, Bitcoin was trading at around $46,000. Although the price fell shortly after, a classic “buy the rumor, sell the news” scenario, the market quickly recovered, and within two months, Bitcoin’s price was up about 60%.

Figure 3: Bitcoin Price Action Following ETF Approvals. Go to live chart 🔍

This growth correlates with the accumulation of Bitcoin by institutional investors through ETFs. If this pattern continues and institutions continue to buy at their current or increased pace, we could see a sustained rally in Bitcoin prices. The key factor here is the assumption that these institutional players are long-term holders, unlikely to sell their assets anytime soon. This continued accumulation would reduce the liquid supply of Bitcoin, requiring less capital flow to push prices even higher.

The multiplier effect of money: amplifying impact

The accumulation of assets by institutional actors is significant. Its potential market impact is even more profound when you consider the money multiplier effect. The principle is simple: when a large part of the supply of an asset is taken out of active circulation, such as nearly 75% of the supply that has not moved in at least six months, as highlighted by HODL Waves, the price of the rest in circulation. the offer may be more volatile. Every dollar invested has a magnified impact on the overall market capitalization.

Figure 4: Bitcoin HODL waves underscoring BTC’s illiquidity. Go to live chart 🔍

For Bitcoin, with around 25% of its supply being liquid and actively traded, the money multiplier effect can be particularly powerful. If we assume that this illiquidity results in a $1 market flow increase in market cap by $4 (4x money multiplier), institutional ownership of 6.29% of all bitcoins could effectively influence about 25% of circulating supply.

If institutions were to start offloading their holdings, the market would likely experience a significant decline. Especially since this would likely cause retail holders to start offloading their bitcoins as well. Conversely, if these institutions continue to buy, the price of BTC could rise dramatically, especially if they maintain their positions as long-term holders. This dynamic underscores the double-edged nature of institutional involvement in Bitcoin, as they slowly, then suddenly, possess greater influence over the asset.

Conclusion

Institutional investment in Bitcoin has both positive and negative aspects. It brings legitimacy and capital that could drive Bitcoin prices to new heights, especially if these entities are committed for the long term. However, the concentration of Bitcoin in the hands of a few institutions could lead to increased volatility and significant downside risk if these players decide to exit their positions.

For a more in-depth look at this topic, check out a recent YouTube video here: