Since July 29th, Grayscale and MicroStrategy have purchased 14,422 BTC and 21,454 BTC respectively, totaling more than $410 million USD in value at the time of writing. During the same period, Bitcoin miners mined 12,594 BTC. In other words: two institutions bought three times as much bitcoin as was mined.
The large-scale purchases of the two conglomerates demonstrate two crucial trends. First, the perception of Bitcoin as a store of value and a hedge against inflation is strengthening. Second, institutions are confidently investing in bitcoin.
Throughout the second half of 2020, the primary catalyst behind the inflow of institutional capital into bitcoin was the fading U.S. dollar.
Since April, the U.S. dollar has declined substantially against other reserve currencies. Various macro factors, including inflation and the pandemic, caused additional selling pressure on the dollar.
Joe Manimbo, a senior market analyst at Western Union Business Solutions, said the delay in stimulus could further cause the U.S. dollar and the economy to decline:
“The longer wait for Washington to deliver another round of pandemic relief has caused dollar-negative clouds to gather over the economy.”
If the dollar continues to see an extended downtrend, the appetite for alternative stores of value could increase. Assets like gold and Bitcoin could simultaneously rally, driven by institutional demand.
The confluence of rising inflation, growing perception of Bitcoin as a store of value, and uncertainty in the global economy could make Bitcoin more attractive to institutions.
Companies are already starting to consider bitcoin as an investment to offset inflation in the long-term. In its official press statement, MicroStrategy, a $1.3 billion software firm based in the U.S., pinpointed inflation and Bitcoin’s long-term trajectory as its two main reasons behind the investment.
“MicroStrategy observed distinctive properties of Bitcoin that led it to believe investing in the cryptocurrency would provide not only a reasonable hedge against inflation, but also the prospect of earning a higher return than other investments.”
Barry Silbert, the CEO of Grayscale, recently announced that Grayscale’s assets under management achieved a new all-time high. The firm operates the Grayscale Bitcoin Trust, one of the few publicly traded investment vehicles in the U.S. that tailor to institutional investors.
Institutions often utilize the Grayscale Bitcoin Trust to gain exposure to Bitcoin without carrying significant risks in terms of security and maintenance. The AUM of Grayscale hit $5.8 billion on August 11, with the Grayscale Bitcoin Trust accounting for $4.8 billion.
The consistent increase in institutional investments in Bitcoin coincides with a correlation between Bitcoin and gold. The two data points evidently show institutions are warming up to Bitcoin.