The recent rapid rise in the price of Bitcoin has attracted wider market attention. Today, the price of Bitcoin reaches $23,318. The price of Bitcoin is now the highest point in history. One issue that the market is now very concerned about is the future trend of Bitcoin prices. The long-term trend of Bitcoin price is affected by its fundamentals (see my article “How is the market value of Bitcoin different from the Internet bubble?”, “Talk about the value and risk of Bitcoin”). In general, in the long run, Bitcoin will be in a long-term upward trend. But even in the near term, some market factors indicate that Bitcoin still has a lot of room to rise. The current premiums of some compliance transactions related to Bitcoin transactions indicate that there is still a large amount of funds to be directly entered into Bitcoin.
Bitcoin has not yet become a mainstream financial transaction product. Therefore, it still does not trade in all compliant trading venues. Most of the funds of institutions can only be traded in these compliant trading venues. In order to hold bitcoins in their own positions, they can only buy bitcoins indirectly. This creates an indirect compliance premium for Bitcoin transactions. This premium can be clearly seen from the following three cases.
The first is MicroStrategy, a US listed company. The media first reported on August 11 that MicroStrategy used $250 million to buy Bitcoin. Since then, the company has continuously increased its holdings of Bitcoin, and even raised USD 650 million to purchase Bitcoin by issuing bonds. Now MicroStrategy has become one of the institutions that hold a large number of bitcoins. Its stock trading prices have also seen a substantial increase. This growth indicates that the stock market is holding Bitcoin indirectly by holding shares in this company.
The second company in this area is PayPal. PayPal announced on October 20 that it will provide its users with bitcoin trading services. Since then, PayPal’s stock has also risen sharply. This shows that the stock market recognizes this strategy of PayPal.
The third and more direct case is the Grayscale Bitcoin Trust. This trust was established as early as 2013. But recently, the price of its bitcoin trust share has formed a high premium to the current bitcoin price. It can be seen that the grayscale bitcoin trust transaction price has formed a 17% premium relative to the current bitcoin price. The formation of such a premium is because many institutional investors cannot directly hold bitcoins, so they would rather pay a high premium to purchase bitcoin trust shares, thereby holding bitcoins indirectly. This shows the judgment of these investors on the future trend of Bitcoin.
We all know that most of the world’s funds are managed through institutions. These institutions can only operate in a compliant manner. These compliance contents include trading medium, trading venues and trading products. At present, Bitcoin transactions cannot meet all the compliance conditions required by institutional investors, but institutional investors obviously have a very urgent need to hold Bitcoin now, which has resulted in the above compliance premium. Obviously, such a premium will not last. Bitcoin transactions ultimately need to meet all compliance conditions before institutional investors can start holding. At that time, there will be no such premium in the market. This also indicates that the price of Bitcoin will rise further.
