In 2014, Elon Musk – then a mere billionaire rather than the world’s richest man – opined that “bitcoin is probably a good thing.” Seven years on and he has made one of the biggest crypto investments in history, plunging $1.5 billion into the world’s hottest digital asset. By adding bitcoin to its balance sheet, electric car maker Tesla confirmed a new dawn for the crypto industry and reflected a trend of rising institutional interest that has propelled BTC to a new all-time high.
Of course, Tesla’s purchase, as well as its plans to accept the cryptocurrency as payment for products, did not happen in a vacuum. The carmaker is merely the best-known company to throw its financial heft behind the skyrocketing asset, with others having lain out the blueprint.
The year crypto went institutional
In November, Galaxy Digital CEO Mike Novogratz called bitcoin “an institutional asset,” predicting that 2021 will be “as good or better than 2020.” Given that bitcoin has subsequently soared to unprecedented highs while attracting investment from the likes of Tesla, that prophecy might as well be engraved on a tablet of stone. A month after Novogratz’ tweet, British asset manager Ruffer confirmed that it had bought $744 million of bitcoin, constituting 2.7% of its assets under management.
The timing proved propitious: within two months, the company had withdrawn its initial outlay – plus $650 million of profits. “We still have around $700 million left in and are currently up by $750 million overall,” said Ruffer co-manager Duncan MacInnes in early February.
Nasdaq-listed MicroStrategy, headed up by vocal bitcoin evangelist Michael Saylor, was another big firm to FOMO into crypto last year, taking its BTC holdings to $1.1 billion (now worth over $3 billion). Saylor calls bitcoin “an institutional safe-haven asset,” and claims that it can convert a balance sheet from a liability into an asset. No-one applauded Tesla’s purchase more enthusiastically than Saylor, who previously offered to show Musk his “playbook” on Twitter. Billionaires stick together, you know.
The MicroStrategy boss recently hosted a Corporate Strategy conference, where he talked about ways to preserve capital, generate income, and create shareholder value using bitcoin. During the event, New York Digital Investment Group (NYDIG) CEO Ross Stevens revealed that the firm managed $6 billion in bitcoin for some 280 institutional clients.
Many are wondering what has driven such enormous institutional flows.
Why now? Certainly, the growing recognition of bitcoin as an asset class has helped, as has the eye-watering Covid-19 stimulus packages announced by a slew of central banks, which have strengthened bitcoin’s “digital gold” narrative: the hardest of all hard currencies, bitcoin has a fixed, predictable supply of 21 million. Low-interest rates are also motivating individuals and institutions to explore deflationary, non-sovereign assets.
According to a leaked Citibank report, arguments in favour of bitcoin “could well be at their most persuasive ever,” particularly since banks are increasingly exploring their own Central Bank Digital Currencies (CBDCs). The report’s author, analyst Tom Fitzpatrick, claimed bitcoin could achieve a price of $318,000 in 2021. While that seems especially optimistic, Fitzpatrick isn’t exactly an outlier: in a recent research note to clients, analysts at JPMorgan Chase predicted a long-term price target of more than $146,000. There is, in other words, plenty of race left to run.
Growing familiarity, positive forecasts
A decade after bitcoin first reached parity with the US dollar, people are losing their fear factor. Retail interest has grown steadily in the western world, and at this juncture, most people are, at the very least, aware of bitcoin and understand its value. If you don’t hold any, chances are you know someone that does.
A recent survey by bitFlyer USA, the North American arm of Japan’s most popular cryptocurrency exchange, highlighted this point. According to a survey of 3,000 participants, “30% of Americans believe bitcoin/cryptocurrencies will be an attractive investment in 2021, making it two times more popular than gold and the fourth most selected asset.”
Despite lawmakers and mainstream media voices often portraying bitcoin as a preferred currency of criminals and fraudsters, 76% of US-based respondents who were familiar with cryptocurrency had a positive perception of it as an investment.
“This survey highlights a few key points,” says bitFlyer USA COO Joel Edgerton. “One is the global nature of bitcoin and the clash of different viewpoints (Japanese and American) using the exact same information. Japanese retail clients have been in the market longer than American retail customers and are a bit more cynical during this bull market cycle. Another is the beginning of bitcoin moving beyond the story of a digital commodity replacing gold and into a new phase as a replacement for payment systems. Beyond Tesla buying bitcoin as a reserve for its cash, it also announced it would accept bitcoin as payment for its cars. In the long run, that second part is more bullish for the growth of bitcoin in the global financial system”.
“In its SEC filing, Tesla noted that it bought bitcoin to maximise returns on its idle cash reserves. This makes sense whatever way you look at it, and we expect this kind of pragmatic thinking to permeate the corporate world in coming months.”
Nimrod Lehavi, CEO and co-founder of global industry fiat/crypto leader, Simplex, sounds a similarly positive note. “The industry is in a great place primed for mass adoption. Even setting aside the recent rally, we’re at a juncture where users can acquire cryptocurrency at the touch of a button, convert it to fiat just as easily, helping individuals everywhere leverage their funds the way they want to, whether that’s in crypto or fiat.
“At Simplex, we’ve partnered with over 200 crypto exchanges, brokers, and wallets, in addition to leading browsers and tech companies to facilitate the capability for seamless on/offramps. We enable the complete issuance of crypto-to-fiat friendly banking solutions and bank cards, which can be used to transact in any stores that accept Visa cards. The increased fungibility of cryptocurrency strengthens its appeal, because, as well as being a store of wealth, it can act as a medium of exchange.”
Crypto for the common man
Because each bitcoin is divisible into 100 million satoshis, it’s not just big-brained billionaires who can build a portfolio. In October, PayPal announced that it would support the purchase and sale of cryptocurrencies directly on its platform. The fintech company also said that digital assets would be enabled as a funding source for purchases, meaning users could make purchases in their preferred crypto at over 26 million merchants.
Although Musk recently announced that he would follow the lead of Hewlett Packard and move Tesla’s base of operations from Silicon Valley to Texas, there is a decidedly West Coast flavor to institutional bitcoin adoption. The world’s largest cryptocurrency exchange, Coinbase, is based in San Francisco, and Twitter’s finance chief Ned Segal has said the tech giant is looking at whether it can use bitcoin to pay vendors and employees. Facebook, of course, is still working on its own digital currency. Formerly known as Libra, the proposed stablecoin hit the skids amid regulatory scrutiny in 2019 and was rebranded Diem late last year. It’s expected to launch sometime this year.
Twitter CEO Jack Dorsey, of course, has long been a proponent of bitcoin; his company Square acts as one of the United States’ most popular fiat onramps via Cash App, which now has over 30 million active monthly users. Last year, Square announced that it had purchased $50 million of bitcoin, calling it “an instrument of economic empowerment” and “a way for the world to participate in a global monetary system.”
Dorsey has also teamed up with rapper Jay Z to create a bitcoin-backed endowment to fund development in Africa and India.
Given the influence of Musk and Dorsey – combined, they have over 50 million Twitter followers – it seems likely that we’ll see lots of fast-moving Silicon Valley entrepreneurs race to add bitcoin to their balance sheets over the next 12 months. After all, when some of the world’s best-known investors are stacking sats, it’s only logical to follow suit. Particularly if you too have deep pockets.
Hedge funds, carmakers, tech giants, banks – all are pushing demand for cryptocurrency to fresh highs, while beneath the ivory towers, regular consumers load up on crypto.