Bitcoin’s ‘When Moon’ Potential Relies On Institutional Investors, Or Does It?
The community of cryptocurrency enthusiasts often wonders when they will see Bitcoin reach the moon. It is assumed that it will happen as soon as institutional investors enter the market. According to some experts, this will happen once the regulatory framework makes trading and owning Bitcoin (BTC) and other cryptocurrencies legal as possessing other assets like gold or stocks.
“Bitcoin's gonna pay $14,000” say several bulls. That is the easiest call because it is a figure that has already been exceeded. But for brave people like Tim Draper, Bitcoin will reach $200,000 by 2022. Others in the market, such as Forbes columnist and ThinkMarkets London strategist Naeem Aslam, believe that $50,000 this December is very likely.
This belief in a Bull market is accentuated as many users become more and more aware of the news that listed funds are getting closer to getting the green light from the US Securities and Exchange Commission (SEC). They also cite market-friendly regulations that will make investors with ‘real money’ think that the most important cryptocurrencies can be traded with investor protections, as it is possible to do it with gold futures and the foreign exchange markets. These regulations give to investment advisors, with fiduciary responsibility towards a client, an impetus to put the money to work in the crypto world.
Once BTC is regulated as a security, institutional investors will follow in the footsteps of high net worth individuals and hedge funds that are already in cryptocurrency. After it the crypto market will go to the moon.
At the moment there are some professors studying how virtual currencies work as a store of value. And this is something that should be taken into account for the future. In general, these experts end up giving advice to companies and politicians that decide the future of whole countries.
“There are already professors studying how to value cryptocurrencies as a traditional value,”
says Bitcoin skeptic and Acadian Asset Management strategist Philip Owrutsky.
And he may be changing his mind since he was at The Palms in Boston on an autumn day in June in a sweater, complaining about the weather, but a passionate debate about Bitcoin with his classmates kept them warm.
“I'm not convinced that Bitcoin will become the world leader in cryptocurrency. And I am not convinced that institutional money is going to be allocated. But everyone is asking about it, that's true,”
How Is The Panorama Going?
On Tuesday, the SEC postponed its decision on the new Bitcoin of Direxion ETF. The Massachusetts-based fund company, known for its double-leveraged ETFs, will have to wait until September to make a decision.
But is there anything in the water? Bitwise Asset Management, based in San Francisco, wants to navigate the same trail of Direxion. They also filed a similar petition with the SEC on Tuesday, the WSJ reported.
Sustany Capital, a cryptocurrency and blockchain technology investment firm in Newport Beach, recently conducted a survey among 1,000 American adults about their attitudes toward cryptocurrencies. The report will be published in a few weeks. But one of the advantages is that 88% of Millennials said they will buy cryptocurrencies because they think it's a good investment.
The Millennial generation is the largest generation of the workforce, according to Pew Research. They are also the largest generation since the Baby Boomers.
“I would say that right now there is little or no attraction for investing clients' money in digital assets,”
says Michael Chang, CEO of Wachsman PR's Strategic Advisory Group, at a cryptocurrency value conference in Switzerland.
Chang is like many others in finance who are coming onto the pitch: he left Jeffries to make a deep dive into the promised land of cryptocurrency.
“When you’re a bank like Jeffries, you have responsibilities to your clients. If you want crypto, you have to go to the specialist firms like a Pantera or a Soros Management, which is now investing in it through a separate fund. A lot of these guys have money in the big 10 coins now,”
How's Europe Doing With This?
The adoption rate in Switzerland is the highest in Europe, with statistics that approximately one in every thousand people owns Bitcoin or some altcoin.
“Bitcoin's market size was immeasurable, but it now represents about 1% of the gold market, a traditional hedge against the currency, and 1% of the multi-billion dollar gold market is no small thing,”
says Niklas Nikolajsen, co-CEO and president of Bitcoin Suisse, a regulated cryptocurrency broker in Zug, Switzerland.
Bitcoin Suisse's combined turnover in its first year of operation was less than $10 million. Now they say they reach this figure in a single day. Its average turnover in the fourth quarter of 2017 – when Bitcoin reached an all-time high of $20,000 – was $750 million a month, says Nikolajsen.
About half of this amount comes from professional investment managers, including European institutional investors.
“We are not directly exposed to what is happening in the United States, but two of the biggest banks, like Goldman Sachs, are now involved in space,”
Goldman Sachs has a subsidiary that invests in a virtual currency exchange. And they're opening up a cryptocurrency operating table. In Europe and Asia, a number of smaller banks, asset managers and medium-sized family offices invest their clients money in cryptocurrency. “Institutional commitment is limited,” says Nikolajsen. “But whereas before it was zero, now it's way above that.”
And How Is The Industry Really Doing?
For now, Bitcoin has a long way to go and needs to further develop its scalability. Why?
There is no central bank that prints metal coins. Computers can only make a limited number of digital coins in a day. In other words, Bitcoin is finite, finer than gold. This is also one of the reasons why crypto evangelists like Tim Draper think that Bitcoin's prices will be much higher than they are today.
For example, making a bitcoin is a matter of many 0's and 1's. Something for CalTech graduates to reflect on, and not most mere mortals. The computer power needed to make more Bitcoin requires energy.
If Bitcoin were a country, its energy consumption would be on a par with Denmark, which ranks 59th in the world. According to Acadian's Owrutsky, a single bitcoin transaction could power an American house for a week.
Bitcoin consumes the same amount of energy as 2.8 million Americans. Owrutsky estimates that the real cost of a transaction with Bitcoin is about $20, beyond the fees charged directly. That's over 1,000 times the cost of a credit card transaction. This calls into question the sustainability of the blockchain based on Bitcoin's proof of work (PoW).
“Bitcoin will have to evolve its algorithm to mitigate the cost per transaction,” Owrutsky says.
“I think it won’t be enough, really. I think Bitcoin-related electricity consumption will even go higher. They may need to change Bitcoin’s core paradigm or it risks being beat by a competing coin with less resource requirements,”
Perhaps it is a currency like Ethereum (ETH) or Cardano (ADA) or one that has the capabilities to further revolutionize cryptocurrency. So new coins are issued all the time. Valuation models are under construction. This is a work in progress, and it is progressing rapidly. We hope that it will come soon, whoever the definitive innovation may be.
The initial coin offering (ICO) market has Venture Capital firms that create new start-up funds, buy their shares and buy their currencies. It's a whole new world for VC.
But cryptocurrency could also disrupt the business of the initial public offering, as companies test the raising of private capital under existing SEC rules for the start-up of their blockchains.
“The biggest and most legitimate projects will want to attract institutional money while the government comes in and plays with the most egregious violators,”
says Ryan Singer, former founder of Tradehill and now founder of Chia Network. They are filing a public offering of Reg-A to raise up to $50 million in equity for their company.
In May, during a private cocktail party for a Russian-developed cryptocurrency, Tim Draper's big head appeared on a television screen with a tie bearing the Bitcoin logo. He was getting some questions from a host. Bitcoin was in the tank, operating at less than $5,000, compared to $20,000 only five months ago at the time.
To All Of These, Will Big Investors Come Yes Or No? Relax, They're Already Doing It
When moon? Maybe 2022? But that's something rocket scientists and CalTech's computer wizards, the Harry Potters of algorithms and coding, have to debate.
“Specialist funds are the vehicle of choice for high net worth individuals seeking to include cryptocurrencies as part of a diversified investment portfolio,”
Steve Waterhouse, partner of Pantera Capital.
Here was Draper's final thought on the future of Bitcoin; which would be a blow to the detractors:
“If you asked me would I rather trade my Bitcoin for fiat today,” he says, answering quickly, “I will tell you that would be like asking a gold trader if he’d trade his bullion for seashells.”
Until now, we have seen Bitcoin reaching $20,000 in December 2017, but since then, the famous virtual currency has been in a bear trend. Currently, it is possible to buy BTC for $8,200 dollars.