- Institutional interest in Bitcoin has increased massively in the past year
- More hedge funds and wealthy individuals are buying Bitcoin than ever
- However, we must realize that they are doing so in order to turn a profit, not because of any fundamental correlation
When we read headlines about certain wealthy individuals or corporations buying bitcoin, there is an instant temptation to believe that they are buying into Bitcoin as well as buying the asset itself. We see Michael Saylor and Robert Kiyosaki talking up Bitcoin’s decentralized model and think that, finally, big money gets it. However, if you believe that billion-dollar investment firms are buying bitcoin because they believe in a decentralized future then you are in for a rude awakening. The companies exist to make money, and they will sell.
Big Buyers Don’t Equal Big Fans
Bitcoin’s run to $65,000 was characterized by big players revealing that they had bought into the asset class. First it was MicroStrategy, but others soon followed suit, including MassMutual, hedge fund manager Paul Tudor Jones, Tesla, and, most recently, former Bitcoin skeptic Ray Dalio.
Some, such as MicroStrategy, appear to have bought in because of Bitcoin’s fundamentals – unless Michael Saylor is a very good actor he is passionate about Bitcoin’s core values of decentralization. The same goes for Rich Dad, Poor Dad author Robert Kiyosaki, who has been preaching about gold, silver, and now Bitcoin for years.
Institutions Will Liquidate Their Bitcoin for Dollars…Just Like You
We must be careful however not to tar all institutions with this fundamentals brush. Unless a company comes out and says explicitly why it has bought Bitcoin, we must assume they have bought it to turn a profit. Institutions saw how Bitcoin went from $1,000 to $20,000 in 2017 and they wanted a piece of it, especially as the market is so easy to manipulate both up and down.
Very few institutions are going to do a MicroStrategy and buy every dip. Most have already bought and will simply hold until they perceive the absolute top is in, or until they have made a satisfactory level of profit, where they will sell and walk away.
We have already seen this with Tesla and Ruffer Investment, who made a quick $750 million inside a few weeks in the new year and withdrew half their investment. We may even find that more institutions sold at $65,000, and we can’t can’t castigate them when they do – how many of us can say we’re in it for the joys of decentralized technology as opposed to the potentially huge gains?
Think about it this way, what are you going to do with your bitcoin if it hits $100,000?