For years, Bitcoin enthusiasts have been anticipating a major shift in value due to the involvement of institutional investors. The concept was simple: with large corporations and financial entities investing in Bitcoin, the market would experience massive growth and a sustained period of rising prices. However, the actual outcome was more complex. Although institutions had indeed invested significant capital in Bitcoin, the anticipated “supercycle” did not unfold as expected.
Institutional accumulation
Institutional participation in Bitcoin has increased dramatically in recent years, marked by large purchases of Big companies And the introduction of Bitcoin exchange-traded funds (ETFs) earlier this year.
Leading the charge is MicroStrategy, which alone holds more than 1% of the total Bitcoin supply. Beyond MicroStrategy, other notable players include Marathon Digital, Galaxy Digital, and even Tesla, with significant holdings in Canadian companies like Hut 8 and Hive, as well as international companies like Nexon in Japan and Phoenix Digital Assets in the UK; all of which can be tracked via the new app. Treasury Data Charts are available on the website.
In total, these companies hold over 340,000 Bitcoin. However, the real change was the introduction of Bitcoin exchange-traded funds (ETFs). Since their inception, these financial instruments have attracted billions of dollars in investment, accumulating over 91,000 Bitcoin in just a few months. Together, private companies and ETFs control around 1.24 million Bitcoin, which represents around 6.29% of all Bitcoin in circulation.
A look at recent Bitcoin price movements
To understand the potential future impact of institutional investment, we can look at recent Bitcoin price movements since the approval of Bitcoin ETFs in January. At the time, Bitcoin was trading at around $46,000. Although the price fell shortly after, a classic “buy on the rumor, sell on the news” scenario, the market quickly recovered, and within two months, Bitcoin was up by around 60%.
This surge is linked to institutional investors piling into Bitcoin through ETFs. If this pattern continues and institutions continue to buy at the current or increasing pace, we could see sustained upward momentum in Bitcoin prices. The key factor here is the assumption that these institutional players are long-term holders and are unlikely to sell their holdings anytime soon. This continued piling will reduce the liquid supply of Bitcoin, requiring less capital inflow to push prices higher.
Money Multiplier Effect: Amplifying the Effect
The accumulation of assets by institutional players is significant. Its potential impact on the market becomes even more profound when we consider the money multiplier effect. The principle is clear: when a large portion of the asset supply is removed from active trading, such as the roughly 75% of supply that has not moved for at least six months as shown in the Global Financial Markets report, this means that the market will lose a significant portion of its supply. HODL wavesThe price of the remaining circulating supply may be more volatile. Every dollar invested has an amplified effect on the overall market value.
For Bitcoin, where liquidity and active trading account for about 25% of its supply, the money multiplier effect could be particularly powerful. Assuming that this lack of liquidity leads to a $4 increase in market cap (a 4x money multiplier), institutional ownership of about 6.29% of all Bitcoin could effectively affect about 25% of the circulating supply.
If institutions start to dump their holdings, the market is likely to see a significant decline. Especially since this is likely to prompt retail holders to start dumping their Bitcoin as well. Conversely, if these institutions continue to buy, the price of Bitcoin could rise significantly, especially if they maintain their positions as long-term holders. This dynamic underscores the double-edged nature of institutional involvement in Bitcoin, where they slowly and then suddenly have greater influence over the asset.
conclusion
Institutional investment in Bitcoin has both positive and negative aspects. It brings legitimacy and capital that could push Bitcoin prices to new heights, especially if these entities are committed for the long term. However, the concentration of Bitcoin in the hands of a few institutions could lead to increased volatility and significant downside risks if these players decide to exit their positions.
For a more in-depth look at this topic, check out our recent YouTube video here:
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