Corporations are now investing in cryptocurrencies
The cryptocurrency market goes through regular bullish and bearish cycles, that are usually in some way connected to the Bitcoin reward halving. Until now, each cycle was mainly driven by increased interest from retail investors.
However, in 2021 we’ve seen a quite novel phenomenon in cryptocurrencies: the adoption from institutional investors. Or in other words, an increasing number of public companies decided to buy bitcoin massively during this bullish cycle, investing billions of dollars into the original cryptocurrency.
In this article, we try to decipher why retail investors and big corporations invest in crypto. We will discuss the benefits of bitcoin and the risk factors of investing in these assets in the short and long term.
Benefits and Risks of Investing in Crypto
Bitcoin is the original cryptocurrency that was launched more than a decade ago, in 2009. The creator of Bitcoin wished to offer the world a digital global currency that would be devoid of any manipulation from governments or financial institutions.
To this end, he created a currency whose issuance is entirely dependent on a mathematical process called mining. And to provide this currency an increasing value over time, he limited the number of Bitcoins to 21 million in total that will ever be issued to the public.
As a result, he managed to create a sound store of value, that is almost better than traditional commodities like gold.
Cryptocurrencies have a great number of benefits as investment assets, including:
- Finite supply - unlike FIAT money, Bitcoin and many other cryptos have a fixed maximum supply of coins. This means that scarcity increases over time, and henceforth, their value increases as well.
- Ease of storage and transfer - commodities like gold are difficult to store or transfer overseas. Bitcoin is a flexible store of value that can be easily transported on a piece of paper and send abroad in a couple of clicks.
- True ownership - thanks to the cryptography upon which they are based, cryptocurrency allows for true ownership. Only those in possession of the private keys can access and spend the coins, making them immune from censorship and government confiscation in case of economic crisis.
With that said, there’s one big caveat of investing in crypto: their high volatility. In the short term, Bitcoin value can fluctuate wildly, discouraging investors to put considerable sums in this asset.
Why do Institutions Invest in Crypto?
There are two main reasons why institutional investors are flocking to the crypto markets:
Economic instability - the global economy wasn’t doing great before, but the coronavirus crisis certainly put it to test. Financial institutions realized that major events can crumble the entire economy, leading to the devaluation of their stored assets.
Inflation - inflation is a necessary evil in the economy, as it supports the monetary policies of developed countries. It allows the governments to inject fresh money into the system and stimulate growth. However, when inflation gets out of hand, the purchasing power of the money in circulation decreases dramatically. Consequently, institutions are looking for alternatives that will allow them to conserve the value of their capital.
Cryptocurrencies, with the aforementioned benefits, solve these two problems. They are sound assets that can’t be influenced by geopolitical events and are immune to inflation.
What Institutions Have Invested in Bitcoin?
To fight both instability and inflation, an increasing number of corporations have already invested huge amounts of money in cryptocurrencies. Below is just a reduced list of the most important corporate investments in Bitcoin.
Microstrategy - this company has already bought 91.326 bitcoins at the time of writing, for an average Bitcoin price of $24.000 per coin, equating to more than $2.2 billion.
Tesla - Elon Musk’s company has invested in 42.900 bitcoins, at a median price of $32.000 per coin. The company even started accepting the cryptocurrency for the purchase of their vehicles, only to backtrack on its decisions because of environmental concerns.
Square - one of the first considerable institutional investments in Bitcoin of 2020, Jack Dorsey’s Square invested $170 million in Bitcoin in early 2020.
Goldman Sachs - the financial institution has begun trading with Bitcoin futures with the help of Galaxy Digital.
Grayscale - this international asset manager has invested in dozens of cryptocurrencies including Bitcoin, Ethereum, and recently 13 more DeFi coins.
Conclusion
Before, Bitcoin and cryptocurrencies were shunned by corporations and considered risky to be considered a sound investment. However, something has changed over the years. The increased interest from institutions shows us that they are playing the long game and that cryptocurrencies are here to stay.
Today, we can finally consider Bitcoin and its peers as sound investment assets, instead of some short-lived fad.
And with even more institutional money and (and even entire countries) entering the crypto ecosystem, we can expect more stability and increased regulation that should benefit all the participants in crypto.
