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Macro Analyst Muses "Bitcoin Shortage" as Institutional Accumulation Explodes

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Core to Bitcoin's role as an investment is its scarcity. With a disinflationary supply curve and a maximum supply of 21 million coins, the cryptocurrency derives much of its value from being scarce. Models such as those created by analysts like Plan B suggest this much is true.

Macro investor Dan Tapiero thinks that this scarcity will come into effect even further, and very soon. 

The co-founder of Gold Bullion International pointed out that recent data shared by Grayscale Investments indicate the firm accumulated bitcoin equal to 77% of all mined coins over the third quarter of 2020. 

Grayscale Investments is a digital asset manager which, on behalf of its institutional clients, has accumulated more than two percent of all bitcoin in circulation. As the BTC Times reported, in the third quarter alone, the firm purchased or accumulated $720 million worth of bitcoin for its clients. 

Tapiero believes that with one firm accumulating such a large amount of bitcoin, "shortages" of the cryptocurrency are possible.

The idea goes that miners naturally sell their coins to cover costs. If institutional buyers can outweigh that natural selling pressure with a large enough margin, the Bitcoin price will squeeze higher. The price of any asset is a function of supply and demand, where one outweighing the other results in price movement. 

Tapiero isn't the only analyst who sees institutions pushing Bitcoin sky-high in the years ahead.

Former Goldman Sachs head of hedge fund sales Raoul Pal says that the cryptocurrency will hit $1 million in the next five years, on the back of institutional capital. 

"Just from what I know from all of the institutions, all of the people I speak to, there is an enormous wall of money coming into this. It's an enormous wall of money — just the pipes aren't there to allow people to do it yet, and that's coming. But it's on everybody's radar, and there's a lot of smart people working on it."

We're seeing this starting to take place. Even discounting Grayscale's purchases, institutional players have accumulated a material amount of bitcoin in the past few months. 

Business services company MicroStrategy purchased $425 million worth of bitcoin in August and September to hedge inflation risks. Shortly after, Stone Ridge Asset Management, a $10 billion fund manager, revealed it had purchased 10,000 bitcoin. These are just two examples of many more

Retail Investors Follow Suit

It's worth noting that retail investors seem to also be in the midst of accumulating bitcoin.

Pseudonymous cryptocurrency trader "Z" said that per his analysis, Coinbase, an exchange used by many retail users, has been a net buyer of bitcoin over recent weeks. 

His data indicates the firm's users have completed net purchases of 40,000 bitcoin over the past 44 days, which equates to an average of 800 coins a day. Coincidentally, that's approximately the amount of bitcoin that is mined each day. 

"Went through some numbers today: Since the drop from $12k to $10k on September 2nd, Coinbase alone has been a massive net buyer of $BTC. Roughly 40,000 BTC in net buying in that 44 day period. (800 BTC a day)."

Simultaneously, the total number of bitcoin held on exchanges has decreased en-masse. This suggests that there is a spirit of accumulation amongst retail investors as they await the next leg higher.

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Nick is a writer and analyst who has been following Bitcoin since 2013. When he is not writing, he works on HTC's Bitcoin phone, EXODUS.