Institutionalization, professionalization, commercialization, and inclusion of bitcoin (BTC) in portfolios of hedge funds, treasuries and others is likely to continue its upwards trajectory, providing BTC with endorsement, recognition, and validation, further leading to adoption and price appreciation, according to industry insiders talking to Cryptonews.com.
The institutionalization of cryptocurrency was the emerging theme of 2020, said Seamus Donoghue, VP Sales and Business Development at METACO, a provider of security-critical digital asset infrastructure for financial institutions, adding that, while the investment focus has largely been focused on BTC, ethereum (ETH) “will likely be a high beta alternative to the dominant narrative of Bitcoin as an institutional investment asset class.“ He said it’s possible for the same Fear of Missing Out (FOMO) which pushed retail into crypto and BTC’s price to its all-time high in 2017 to be replicated in 2021 as institutional FOMO.
He added that an acceleration in institutional money coming into BTC would have “a much larger and profound impact on the long term valuation of bitcoin–the risk is for a parabolic move in Bitcoin’s price in 2021.” It’s Donoghue’s opinion that,
“We are now at an inflection point where allocations to bitcoin will accelerate into the mainstream in 2021 and bitcoin will become an essential allocation for any institutional portfolio.”
2020 was the year when bitcoin started being taken seriously by some large corporations, retail investors, and institutional investors.
“This has set us up for a huge 2021 and beyond,” when we may see crypto investment “exploding in growth as more funds start adding it to their portfolio, more companies start accepting it as a payment method, and governments putting some positive regulation around it,” according to Tim Bos, CEO of ShareRing, a decentralized sharing economy and self-sovereign identity platform.
And Sinjin David Jung, Managing Director of IBMR.io (International Blockchain Monetary Reserve), stated that “adoption will be meteoric in 2021 now that bitcoin has been adopted by institutions.”
“Ultimately the true added value is simply that when people or institutions are buying into bitcoin, not because they mined it, but with actual cash at the current valuation, that creates a very established monetary system which really bitcoin now has become. The world’s immutable global independent sovereign ledger,” he said.
There are many more positive expectations shared by experts. Eric Wall, the Chief Investment Officer of the crypto hedge fund outfit Arcane Assets, told Cryptonews.com that “it’s quite clear that bitcoin is making rapid progress in that it’s becoming an asset class that’s suitable addition to many investors’ portfolios.” Wall finds that the professionalization of bitcoin, as well as its inclusion in the portfolios of hedge funds, high-net-worth individuals, family offices and corporate treasuries is likely to only accelerate in 2021. “Retail investor adoption is likely to track this development,” he said.
Speaking of which, Erick Pinos, Americas Ecosystem Lead at open source blockchain Ontology (ONT), said that more large financial institutions will publicly announce that they have moved funds into BTC in 2021, which “will create a snowball effect not only for other large institutions to follow with their funds but also for the retail market to start moving more personal wealth into bitcoin.”
Seamus Donoghue added that retail will “play no small part in crypto” as they are given increasingly easier access to the markets. It’s bitcoin’s performance that will drive the narrative and, if the institutional market evolves as expected in 2021, rapidly expanding on-ramps will only add fuel to the fire. “Institutional investor adoption drives the build out of institutional infrastructure to support bitcoin’s adoption. This in turn provides the foundation for retail investment vehicles and retail on-ramps,” he said.
‘Wall Street smells opportunity’
While Will Liu, Head of decentralized protocol SAGA, argues that “in 2021, it is obvious that Bitcoin has earned its place in Wall Street,” Dave Perrill, CEO of ComputeNorth, also sees crypto attracting Wall Street’s attention, given that millennials are adopting digital assets as a currency and as an investment asset class, saying:
“Wall Street also smells opportunity, as firms finally realize that there is money to be made in digital currencies. […] Look for several new investment opportunities for main street investors to participate in digital assets.”
As Dave Hodgson, Chief Investment Officer at NEM Group and Managing Director at NEM Ventures, finds that crypto was being “adopted in increasing volumes” in 2020, Nangeng Zhang, CEO of major bitcoin mining hardware provider Canaan, noted that “unlike earlier years, the current demand for bitcoin is fundamentally driven by the growing presence of Wall Street institutions through the form of investments via corporate treasuries.”
He gave the examples of companies like Grayscale, MicroStrategy, and Galaxy Digital investing in crypto, saying they “reflect a growing appetite for bitcoin among institutional players but also the asset’s credibility in the eyes of traditional firms.”
Adding Square to the mix, Seamus Donoghue said that “treasury management has been turned upside down” as treasurers try to find a strategy to manage their liquid assets at a time of global negative rates and quantitative easing, and “Bitcoin is gaining favor as an alternative to fiat money markets or fixed income investments.”
And that’s not all, Nangeng Zhang reminded that investment management firms, such as Ruffer, have “jumped on the bandwagon,” while to meet growing demand, S&P Dow Jones Indices announced that it would be launching crypto indices. Also, PayPal allowing its users to leverage crypto on its platform “shows a clear sign of acceptance among mainstream players,” providing a “critical” recognition, “with commercialization being a valuable form of endorsement for cryptocurrencies,” Zhang said, adding that in 2021, “I expect to see even more promising developments taking place.”
Matthew Gould of Unstoppable Domains also argued that we can expect more fintech companies like PayPal to “get more interested and involved with crypto inside their products,” while Blockdaemon CEO Konstantin Richter said that the trend of institutions and liquidity providers rapidly entering the space is “likely to continue, and increase momentum in 2021.” He added that thanks to the likes of PayPal offering crypto payments and the capacity to purchase crypto directly, more users will have access to experiment with BTC and other cryptocurrencies.
The financial sector’s adoption of crypto is more advanced than that of the corporate sector, Donoghue said, adding that if those firms that announced treasury allocations see their equity price outperform others, more firms will be sure to follow.
“In terms of hedge funds and asset managers, when end of year annual return leagues tables are published and early adopters see huge outperformance, it is certain that underperforming funds will be asked why they didn’t have any bitcoin exposure, he said.”
‘Don’t fight the Fed’
Meanwhile, Sinjin David Jung finds that “the pandemic for all its ills and devastation was the crisis that bitcoin needed because the added QE [quantitative easing] and exponential growth in the stock market created this understanding and this fear of how fragile the current financial system is and bitcoin became a very clear hedge.”
Philippe Bekhazi, CEO of stablecoin platform Stablehouse, also said that the COVID-19 pandemic “accelerated certain trends that were already well established,” such as bitcoin becoming “a type of digital gold against unrestrained money printing.” He expects to see further impact of the pandemic in 2021, for example payment networks based on BTC or ETH growing significantly as certain countries suffer economic downturns (such as Argentina, Venezuela, Iran, or Lebanon).
In the meantime, Dave Perrill reminded of a popular investment policy – “Don’t fight the Fed.” With president-elect Joe Biden assembling his economic team, Perrill said, the US Federal Reserve (Fed) will continue to print even more money to stimulate the economy and keep Biden’s campaign promise. “Increased inflation will continue the acceleration of the dollar decline and the smart money moving to digital currencies,” said Perrill.
Dave Hodgson argued that, if the US continues to expand quantitative easing, diversifying “seems like a sensible, even conservative, fiscal choice” – “and BTC would be one of those natural homes for liquidity seeking shelter.”
Antonio Velasquez, Head of Communications at Hermez Network, a scaling solution on Ethereum, also finds that “there are no signs of money printing stopping any time soon, so we could expect more and more investment funds, family offices, and high-networth individuals allocating chunks of their portfolios to bitcoin and ethereum, at first.” He added that,
“Nobody knows where prices will be, but we can guess that the constant fiat currency debasement will lead most cryptos to all-time highs.”