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Institutional Investors Could Help Bitcoin Reach New Highs
By Hannah Lang, Suzanne McGee
(Reuters) – As traditional institutions pour money into Bitcoin, the cryptocurrency’s latest meteoric rally to a record high may last longer than 2021, experts say.
The world’s largest cryptocurrency, known for its volatility, touched $69,202 on Tuesday, driven by excitement over new Bitcoin spot exchange-traded funds (ETFs) in the United States and hopes that the Federal Reserve will begin cutting US interest rates this year.
Given that Bitcoin has been a financial asset for less than two decades, predicting its price trajectory remains extremely difficult. Just months after retail exuberance helped propel bitcoin to its previous all-time high in November 2021, the cryptocurrency collapsed, taking half the crypto industry with it.
But more institutions committing long-term money could help the token maintain its high levels this time around, analysts and executives said.
“Traditional institutions were once absent; today they are here in full force as the main drivers of the crypto bull market,” said Nathan McCauley, CEO of Anchorage Digital, a crypto platform.
In February, for example, software company MicroStrategy said it purchased around 3,000 bitcoins for $155 million, while social media platform Reddit revealed it purchased small amounts of bitcoin and ether.
“The market is being pushed around by some whales in the crypto industry,” said Steve Sosnick, chief strategist at Interactive Brokers, adding that he expected a near-term pullback in the price of Bitcoin as the investors would take profits.
Another driver of sticky money is the 10 new U.S. Bitcoin ETFs, which provide a regulated option to traditional institutions or other buyers who can now feel more secure investing in the cryptocurrency.
Bitcoin has surged more than 50% this year alone, with most of those gains coinciding with inflows into new ETFs. Net flows into products reached $7.9 billion on Monday, according to BitMex Research.
Sui Chung, CEO of CF Benchmarks, which provides the index for six ETFs, said he knew of some registered investment advisers and other large institutions that buy ETFs, although he declined to name them.
“For institutions, the main attraction of bitcoin lies in the diversification potential it offers,” he added.
Wealth manager Gerber Kawasaki invested in BlackRock’s bitcoin spot ETF through its AdvisorShares ETF, crypto site The Block reported last month. These investors are generally less price sensitive, Bitfinex analysts wrote.
“Any decline after the current cycle peak could be less drastic than previous downturns. We saw a similar stable trajectory in prices after a huge surge following the launch of gold ETFs,” they added.
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Metrics that other analysts have used to gauge retail interest in cryptocurrencies, such as Google searches, have remained muted compared to 2021 and 2022, according to Google Trends.
Trading in CME Micro Bitcoin futures, which at 1/10th of bitcoin is affordable to wealthier retail investors, rose from 32,007 on Feb. 27 to nearly 87,000 on Feb. 28, according to data from the CME.
“If there is a retail frenzy, it started on February 27,” Chung said.
SUPPLY DYNAMICS
Certainly, Bitcoin only saw the light of day in 2008 and remains a speculative asset dominated by retail investors. Given its brief history, it is difficult to predict how it will trade over multiple economic cycles.
Unlike commodities like gold, it has no economic fundamentals, so there is no reliable way to predict its price, European Central Bank analysts warned last month.
Yet, as with commodities, supply factors come into play.
One unknown is the potential overprice of bitcoins trapped in bankruptcies which could be liquidated in the coming months. As much as $35 billion in cryptocurrencies were locked up in bankruptcies last year, although Reuters could not determine how much was in Bitcoin.
On the other hand, the upcoming bitcoin “halving” is expected to further reduce supply, ultimately capped at 21 million bitcoins. This process last happened in 2020, meaning there is more pressure on Bitcoin’s supply compared to the 2021 rally.
That could push prices higher, said Zach Pandl, managing director of research at Grayscale Investments, which operates one of the spot Bitcoin ETFs.
“The demand for Bitcoin faces an increasingly restricted supply,” he added.
(Reporting by Hannah Lang in Washington and Suzanne McGee; additional reporting by Elizabeth Howcroft in London; editing by Michelle Price and David Gregorio)