In 2020, exchanges have reportedly been sending 19% more bitcoin (BTC) transfers worth USD 1m or more, as investors are looking for a hedge against inflation and devaluation. (Updated at 14:24 UTC: updates in bold – Ruffer’s exposure to bitcoin currently totals over USD 740m, not USD 15m as previously stated.)
BTC has been rallying recently, even hitting a series of all-time highs before correcting downwards. The market is actually being driven by North American institutional investors, according to Philip Gradwell, the chief economist at blockchain analysis firm Chainalysis, as cited by Bloomberg. The largest investors come from the region, he said, while North American exchanges are getting net inflows BTC from other areas in the world as well.
“And the investors have been large — exchanges are sending 19% more transfers worth [USD] 1 million or more this year while bitcoin’s price has been above [USD] 10,000 compared with 2017 when it was trading above those levels,” the article cited Gradwell.
As reported by Cryptonews.com, major companies, such as software company MicroStrategy and payments company Square, have already invested in the world’s number one crypto, as did some well-known individuals like hedge fund manager Paul Tudor Jones.
As another, the most recent example of an investor looking for a hedge, UK-based Ruffer Investment Company allocated 2.7% of its assets under management to bitcoin.
“Ruffer’s exposure to bitcoin currently totals around GBP 550m [USD 744m],” a Ruffer spokesperson told Cryptonews.com.
“In November, Ruffer gained exposure to bitcoin via a specialist third-party manager. This was primarily a protective move for portfolios. It diversifies Ruffer portfolios’ investments in gold and inflation-linked bonds, and it acts as a hedge to some of the risks that we see in a fragile monetary system and distorted financial markets,” the spokesperson added.
These are examples of companies that are “laying out the groundwork for how you add bitcoin to your balance sheet, how you should think about bitcoin as a substitute for cash,” Seth Ginns, a managing partner at investment firm CoinFund, was quoted by Bloomberg as saying. Ginns also claimed that there is “a lot” of interest from hedge funds in BTC, and that a broader institutional adoption trend is likely to continue in 2021.
Crypto market analysis firm Coin Metrics also noted that, though avoiding bitcoin as a risky asset, many institutions endorsed it in 2020. Many find that the reason behind it is “the growing narrative that bitcoin could serve as a good hedge against inflation,” particularly in the midst of the COVID-19 pandemic, as well as the combination of rising fiscal deficits and quantitative easing pushing “federal banks to their limits” and creating “conditions that could lead to a significant inflation rate rise.”
On the other hand, bitcoin’s “predictable and transparent monetary policy is ultimately what makes it a good potential hedge against inflation,” said Coin Metrics. New bitcoins are issued every time a new block is mined, meaning there is a predictable, transparent and auditable supply schedule, and there is a limited supply of BTC.
It should then come as no surprise that, in a poll taken in early December, some 15% of fund managers surveyed by Bank of America said that BTC is the third-most crowded trade, according to Bloomberg. Shorting the USD is found to be the second-most crowded trade and “long tech” as the most crowded one.
Furthermore, US senator-elect Cynthia Lummis is quoted by Market Insider as saying that she’s a hodler, and that bitcoin is a great store of value which can help with the US national debt as an “alternative path” should an initial plan to retire the debt fail. Additionally, “if we reach the point where we have overspent so much that things start crashing down, the black swan event occurs with any regard to any fiat currency…there is a backstop available to every government in the world and that backstop is bitcoin,” said Lummis.
At pixel time (10:22 UTC), BTC trades at USD 19,615 and is up by 2.4% in a day and almost 9% in a week. The price rallied by 21% in a month and 182% in a year.