The world's leading digital asset, Bitcoin, emerged in 2009 when an anonymous individual or group of individuals named Satoshi Nakamoto started a digital revolution to rewire the finance industry. For nearly a decade, institutional investors on Wall Street overlooked crypto as an asset class, while public perception was largely skewed towards viewing it as a black market currency.
Today, Bitcoin is a booming multi-billion dollar investment vehicle with a market capitalization that has surpassed the GDP of many mid-sized European economies. The demand from institutional investors, public companies and some governments around digital assets is soaring as the technology earns itself the lindy effect and promises to comprise the ideal inflation hedge.
Are Institutional Investors Buying Crypto?
An institutional investor can be defined as a company or organization that invests money on behalf of other individuals. Such financial intermediaries include banks, pension funds, mutual funds and hedge funds that manage assets on behalf of their clients. These companies can be triaged according to the level of risks their clients are willing to take with their money, with pension funds usually being the most conservative when making investment decisions.
For a while, the extreme volatility of Bitcoin’s price has made investments in it look highly speculative and thus attractive only to a limited number of specialised firms. Moreover, in the aftermath of the 2008 crisis, strict regulations of the financial markets had also restricted most institutional investors from investing in crypto until the SEC was able to develop a regulatory framework for investments in this asset class.
More recently, the regulatory climate has become more clear and paved the way for institutional players to invest capital into the crypto industry. A number of analysts and investors argue that the crypto bull cycle of 2020 was largely driven by a wave of institutional buy-ins.
Renowned Bitcoin investor Mike Novogratz argues that the 148% surge in the value of Bitcoin over 2020 differs from the retail-driven speculative frenzy of 2017, when Bitcoin reached $19,000, only for it to drop 78% in less than a year.
He continued by stating:
"You can't buy bitcoin at Bank of America or Citibank, but their strategists are talking about it. We are seeing institutions buying into this; we are seeing extremely wealthy families buy into this, across the board you're getting institutional adoption." Additionally, he supported that the youth views the digital asset as “social money” as it is not prone to manipulation by centralized institutions and governments. On the other hand, baby boomers have lost faith in the government’s ability to control inflation as central banks continue to “print” more money for stimulus packages and as such they view Bitcoin as a macro hedge against fiat.
Who are the Biggest Investors in Bitcoin?
More and more Wall Street veterans have acknowledged Bitcoin as the new asset class that has earned its place in their portfolios. Prominent investors like Ray Dalio have started to publicly announce that they “hold some Bitcoin”. We decided to list some of the most prominent and established institutional investors who are leading Bitcoin adoption.
Investor Dan Morehead is the founder and the Chief Executive Officer of Pantera Capital. The firm is the first investment company to focus entirely on Bitcoin and doubles as one of the largest institutional holders of digital assets in the United States.
Pantera launched the first crypto fund in America when Bitcoin traded for just $65 each.
Today, Pantera has a global portfolio with venture investments in exchanges, custodians and DeFi. Exchanges such as Coinbase as well as blockchain companies such as Injective are under the umbrella of Pantera.
Tyler and Cameron Winklevoss
The 'amazing Bitcoin brothers' were once rumored to be the first Bitcoin billionaires. The brothers were able to achieve this feat by owning about 100,000 coins worth approximately $950 million as of June 2020.
In 2015, they successfully launched the Gemini exchange which has grown to become one of the largest platforms in the space. In addition to Bitcoin, the brothers are heavily invested in Ethereum, although they have not revealed their exact holdings to the public.
Silbert is the founder and CEO of Digital Currency Group (DCG). The company was established with a mission to accelerate the development of the global financial system by building as well as supporting Bitcoin and blockchain companies around the world. DCG has invested in more than 125 blockchain-related companies such as Coindesk, Genesis and Grayscale investments.
Coindesk is the leader in the media for the crypto industry and Genesis is a liquidity provider for over-the-counter (OTC) trading of digital assets. Grayscale Investments is the world’s largest Bitcoin and crypto asset manager which provides investment exposure via brokerage accounts.
Michael Novogratz is the founder of the crypto investment firm Galaxy Digital, which describes itself as “the bridge between the crypto and the institutional worlds”. He previously was a prominent hedge fund manager at Fortress. The company is leading a new wave of investments in digital assets by offering a variety of products from index funds to pure Bitcoin holdings. Notably, the firm acquired BitGo, a crypto trading platform. The $1.2 billion deal has been one of the largest in the industry.
Novogratz is not only one of the most prominent investors in Bitcoin, but he's also a passionate crypto commentator.
Institutional Investments in Crypto
Economic uncertainty caused by the COVID-19 pandemic has been a major accelerator in Bitcoin adoption by institutional investors. Indeed, Bitcoin has evolved from being a speculative investment into becoming a new asset class that is recognized by the likes of Goldman Sachs. Major institutions have taken positions in Bitcoin and have started to offer their clients access to Bitcoin funds and ETFs. Amidst the lowest interest rates in history, and fears over the upcoming inflation, Bitcoin has become the primary financial instrument for investors to diversify their assets and hedge against fiat. This interest has also started to spread into other digital assets such as Ethereum and the altcoin market.
Injective is the first cross-chain protocol built for decentralized finance applications. On the Injective exchange, anyone can access, create, and trade unlimited DeFi markets such as futures and perpetuals. Developers can also build cross-chain Ethereum-compatible projects that are lightning fast and achieve instant transaction finality. Injective is backed by a prominent group of stakeholders including Binance, Pantera Capital and Mark Cuban.