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Institutional vs retail investment: the impact of a regulated bitcoin market

Institutional vs retail investment: the impact of a regulated bitcoin market

Thoughts

Bitcoin started as a libertarian experiment, the plaything of geeks and those interested in Austrian economics. It couldn’t even be traded properly until 2010, with the rise of MtGox, and was held and used mainly as a curiosity.

That started to change from 2011, as exchanges came online and speculators got involved. ‘Investing’ in bitcoin was a high-risk activity, though holders were rewarded handsomely for their foresight. Prices rose from a few cents to dollar parity in February 2011.

Over the next two years this soared to more than $1,000 in the 2013 bubble. This was partly driven by activity on the darkmarkets – real demand raising bitcoin’s profile – with speculators playing a major role in bidding the price up. Then came the bear, and crypto’s time in the wilderness.

Things started to change again in 2016, and 2017 was the year of mass retail interest, as ordinary people heard about crypto and took a punt – largely via secure, professionally-run exchanges like Coinbase. Bitcoin gathered steam once again, recovering from around $500 to almost $20,000.

2019 will be the year of institutional money. (It’s not likely to be much before then due to the delays in the SEC’s decision on the SolidX-VanEck ETF. If the main ETF is denied, there will likely be other products arising in due course.) What can we expect at that point?

 

Big money

Institutional money accounts for a large proportion of stock market wealth. It’s hard to say how much, but we can make a few rough estimates. We do know that financial institutions own approximately 80 percent of major stocks. In other words, for every dollar of shares held directly by retail investors, four dollars are held by investment managers. Assuming bitcoin ultimately follows the same pattern, then what?

 

This does not logically mean a 500% increase for crypto. It means that when they market settles with institutions having taken their stake, just one fifth would be owned by individuals. But that process of accumulation is likely to have a far, far greater effect than just 500%. A little money can move the needle a long way. Institutions may end up with 80%, but the value of the 20% remaining will be worth many, many times what it is today. There are no guarantees, but $100k+ valuations are not unreasonable by any means. HODL.

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