Early Investing

Institutional Bitcoin Is Here to Stay

Institutional Bitcoin Is Here to Stay
By Adam Sharp
Date December 18, 2020

It’s official. The institutional move into bitcoin is underway. Large multi-billion dollar firms are now coming into the market. And I think it’s just getting started.

Insurance giant MassMutual announced last week that it had purchased $100 million worth of BTC. It also took a $5 million equity stake in New York Digital Investment Group, a digital asset management firm.

MassMutual is one of the largest insurers in the U.S. It has 5 million customers and has been around since 1851

Even JP Morgan analysts were impressed by the MassMutual news, writing the following (emphasis mine)…

MassMutual’s bitcoin purchases represent another milestone in the bitcoin adoption by institutional investors… One can see the potential demand that could arise over the coming years as other insurance companies and pension funds follow MassMutual’s example.

Why is an insurance company buying bitcoin? Simple. Insurance companies like MassMutual have huge investment portfolios to pay out future claims with. Typically, bonds make up a large portion of these portfolios. But bonds don’t yield anything today because interest rates are near zero. So these guys need alternative investments. Bitcoin has major upside. And it should offer some protection against inflation and monetary debasement, even with a small 1%-to-3% portfolio allocation.

Another big firm — Guggenheim Investments — just filed forms that would allow it to put up to 10% of its $5.3 billion macro fund into bitcoin. This follows other notable new large buyers such as Square and Microstrategy (more on that here).

And more big firms are getting into the crypto custody business. Banking services giant Standard Chartered is launching a crypto custody service. It will be one of dozens — or possibly hundreds — of firms catering to institutional crypto buyers.

Perfect Storm

What’s causing this shift? Runaway debt. Unsound fiscal policy. The stuff we’ve been talking about for years. 

The Federal Reserve has to keep interest rates low indefinitely. There’s so much debt that our economy simply can’t handle the interest payments.

In a recent interview with Bloomberg, Scott Minerd of Guggenheim Investments was asked if low interest rates were a part of their reason for investing in the crypto. Minerd confirmed,  “… our interest in Bitcoin is tied to Fed policy.”

Minerd also gave an eye-watering price target when he stated, “Our fundamental work shows that Bitcoin should be worth about $400,000.”

I’m not officially calling for $400,000 bitcoin. But it’s certainly possible — and even likely over the very long term. The Fed can’t raise rates for a very, very long time. And I think bitcoin will trend up throughout this unprecedented monetary period.

Higher Bitcoin, More Buyers

I’m going to close with something I wrote back in November. 

…if everybody decides they want a tiny slice of bitcoin in their portfolio, there’s going to be overwhelming demand. And that leads me to one of the most interesting — and underappreciated — factors at play. For a long time, bitcoin was too small for big players to even get involved. They would have moved the price too much (some still would). But as price and liquidity rise, it actually makes it possible for more institutions to get involved. Which then drives up the price again. It’s a virtuous cycle that bodes very well for bitcoin.

This is still a hugely underappreciated aspect of this bitcoin bull market. Bitcoin is only now becoming large enough for big institutional players to even pay attention to it. They couldn’t really buy without distorting the price before. Now, finally, the liquidity is there. And all the infrastructure is in place for custody, transfer and brokerage. 

So if you’re wondering, “am I too late?” No, I don’t think you’re too late. I believe bitcoin just started a new bull market cycle — we’re probably going 5x higher from here. It should be a fun next few years. 

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