Although Bitcoin has become a sweet bun sought after by institutions, is it really harmless?
In 2020, which is about to pass, a large number of institutions have poured into Bitcoin. Their funds have triggered a demand crisis at the purchase port, because the liquidity of all sellers has been absorbed.
This scarcity has caused a sharp rise in demand for Bitcoin, and also caused a sharp rise in its price. As seen in the last quarter of 2020, the market value of Bitcoin reached 500 billion US dollars at the end of the year. It seems a dream Is becoming a reality, but is it really no harm?
As of press time, the market value of Bitcoin surpassed traditional financial institutions such as JPMorgan Chase, Citibank and Goldman Sachs. Therefore, we won the victory. This is completely correct and means that Bitcoin has finally become a mainstream asset.
However, some facts may be warning us that we have not actually won the victory.
Technically speaking, Bitcoin is gaining mainstream adoption, but if we look closely, it is not being adopted, but the exile of traditional finance.
Yes, Bitcoin has surpassed the market value of many well-known institutions, but there is a counter-logic here, let us explore why this may be harmful to Bitcoin because it transforms it into a brand new asset class.
So far, Bitcoin has been mainly driven by retail traders, but the recent entry of institutions has eroded this feature. 16.12% of the realized market value of Bitcoin is now owned by institutional investors. That is to say, considering the realized market value of Bitcoin, it is about $186 billion.
In fact, Grayscale’s Bitcoin Trust accounted for a share of 16.3 billion US dollars in the asset management scale of 19 billion US dollars.
Excluding Grayscale, this value is 7.52% owned by institutions, which means that Grayscale has accumulated $16 billion worth of bitcoin funds, while other institutions only account for about a quarter of the share.
Obviously, institutions have not completely started to accumulate, they are already eating up the supply of Bitcoin. More importantly, if this situation continues, it will cause the price of Bitcoin to climb at a steady and slow rate.
At this point, using various Bitcoin models such as S2F or RoI cycle theory to describe, all of which indicate that Bitcoin will reach $100,000 per token, which seems more obvious.
As mentioned above, Bitcoin has been a market driven by retail transactions for a long time. Due to the disadvantages of the traditional market, it is costly for institutions to purchase Bitcoin.
This has two main implications:
1. If institutions continue to accumulate Bitcoin, they will undoubtedly increase the price due to high demand and low supply, but when they do want to arbitrage or reduce the risk of their investment portfolio, and start to hold cash or transfer it back to their original assets At that time, this will cause a lot of selling in the market. Basically, the large-scale entry of institutions will make Bitcoin more relevant to the traditional world, because all institutions think and function the same.
2. Now, due to the entry of institutions, seller liquidity is scarce. Similarly, during the profit-taking period, the proportion of bitcoin in institutions in the market is too large, which may cause an unprecedented collapse of bitcoin.
Therefore, when institutions are pouring into investing in Bitcoin, we should think about some issues in reverse.
