Institutional investment is one of the biggest reasons why Bitcoin’s price keeps going up. Bitcoin has added nearly $5,000 to its price in the last month, has shot up $2,000 in the last two days and is currently at around $15,600—quite the ride.
In August and September of this year, MicroStrategy invested a total of $425 million in Bitcoin. One month later, Square followed suit, investing $50 million in the famed cryptocurrency. Also in October, PayPal announced features that allowed users to trade in Bitcoin, as well as Ethereum, Litecoin and Bitcoin Cash. All of these high profile moves have worked wonders for Bitcoin’s explosive growth.
“The recent flurry of institutional activity—particularly the involvement of a household brand like PayPal—has undisputedly impacted the price of Bitcoin as mainstream interest and trust in this form of investment often increases following such news,” Antoni Trenchev, managing partner of Nexo, told Decrypt.
This wave of mainstream interest, dubbed by Jason Deane, Bitcoin analyst at Quantum Economics, as the “MicroStrategy Effect” has provided several highlight moments in recent months.
The price of Bitcoin has reached the $15,000 mark, a figure not seen since January 2018—shortly after Bitcoin's epic 2017 bull run. This continued push upwards has put 97% of Bitcoin holders into profit.
It has been a strong few weeks for Bitcoin's price. On September 8, Bitcoin was sitting around the $10,000 mark. Since then, the coin has rocketed upwards, smashing through multiple significant price targets and now reaching the $15,000 figure—up 50%.
Bitcoin stacks. Image: Shutterstock
It has b...
As MicroStrategy announced its first Bitcoin investment on August 11, 2020, CEO Michael Saylor picked out several features of Bitcoin that makes it so appealing for long term investment. These included Bitcoin’s brand recognition, network dominance, and technical utility. He even went as far as to describe Bitcoin as “digital gold.”
Bitcoin's price has surged in recent days. Image: Shutterstock
Bitcoin’s positive press has not been limited to MicroStrategy, however. As Square announced an investment of $50 million—or 1% of its total assets—the company’s chief financial officer at the time, Amrita Ahuja, said Bitcoin was part of the company’s strategy for “building products based on a more inclusive future.”
MicroStrategy and Square have made 32% and 38% profits respectively, on their Bitcoin investments to date. These profits come at a time when the cryptocurrency’s price continues to rise above $14,000—a value not seen since January 2018.
MicroStrategy and Square have become two of Bitcoin’s flagship institutional investors, and the fact both companies have experienced above 30% return on their investments tells us that while these firms took a huge risk by investing in such a risky asset, it ha...
It is clear Bitcoin has benefited immensely from such good publicity. Square put its money when its mouth is when it invested $50 million in Bitcoin, but now, Square’s customers are following its lead.
According to a tweet published by Charles Edwards, founder of Capriole Investments, Square is “selling double the Bitcoin that is [being] made.” In Q3 of 2020, Square’s Bitcoin sales figures are listed at approximately 163,000. At this number, Square’s Bitcoin sales figures are about double the total amount of Bitcoin that was mined in the same quarter, approximately 81,000.
This is huge.
Square is selling double the Bitcoin that is made.
...and now Paypal is doing the same.
Paypal is almost 3X Square. We already know Grayscale is consuming a similar magnitude.
Square are not the only company producing impressive figures for Bitcoin. Grayscale Invesments, which looks after Bitcoin on behalf of investors, has picked up over 40,000 Bitcoin in the last month alone. This amounts to over $600 million worth of Bitcoin.
But these finance giants are not the only reasons why Bitcoin’s price is booming.
The correlation with Tether
According to Tether’s transparency data, the USDT market cap broke $17 billion for the first time in history. As the largest stablecoin in the cryptocurrency industry, Tether’s growth has often been seen to correlate with Bitcoin’s price increase.
“Again, the BTC price soared right after the number of stable coin deposits increased,” Ki Young-Ju, CEO of CryptoQuant, reportedly said.
One reason for this correlation is that buying Tether is a way for investors, particularly those in China, to buy Bitcoin. According to a Chainalysis report in August of this year, Tether is the “de facto fiat stand-in for Chinese cryptocurrency users.”
USD collapsing after uncertainty over election results. Not the best moment to keep your wealth in a politics backed coin pic.twitter.com/lo4ROTvYm9
One of the reasons for this is that China is particularly harsh on capital flight—in other words, moving funds out of the country. Tether, with its value tied to the US dollar, has given Chinese investors an alternative way to invest.
This theory was put forward by a Sino Capital report, shared with Decrypt in June of this year. The stablecoin allows the Chinese crypto community to access the cryptocurrency market by interacting with a highly liquid and integrated currency, acting as an on-ramp to further Bitcoin demand.
And as demand ramps up both by institutional players in the US and by Chinese investors, Bitcoin's limited supply is having an even greater impact.
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