Over the past few months, bitcoin has been enjoying a historic bull run like no other. The asset has reached $40,000 in certain weeks, and as a result, we have been hearing several different narratives discussing what could potentially be making the asset spike to such an extent.
Bitcoin May Not Be What We’ve Assumed
One of the most common arguments we’ve been hearing is that institutions are now seeing bitcoin in a much more positive light. They believe that bitcoin is a hedge tool of sorts and comparable with gold in that it can potentially keep one’s wealth safe and sturdy during times of economic strife. With inflation on the rise and the global economy suffering thanks to the coronavirus pandemic, this seems rather easy to believe.
However, according to various sources, this isn’t entirely correct. In fact, data from both JPMorgan and blockchain analysis firm Chainalysis explains that while some institutions have indeed taken part in the bitcoin trading space, they constitute a rather small portion of trading entities. Furthermore, they are primarily investing in BTC for speculative reasons and not because it is allegedly a store of value.
If this is true, it is somewhat disappointing that after 12 or 13 years, bitcoin has not moved beyond the speculative mania that first brought it to mainstream attention. While we’re happy about bitcoin’s rising price, we’ve been under the impression for some time now that many businesses and individuals alike are starting to view bitcoin as something more. An asset that can lead to the security of one’s wealth…
If this is false, one must consider the possibility that despite the massive price hikes, bitcoin hasn’t moved beyond stage one in all this time.
According to analysts of JPMorgan:
We believe that a significant component of last year’s institutional flows into bitcoin reflect speculative investors seeking to front run other more real-money institutional investors.
The analysts point to two specific forms of data to prove this point. The first one is that most of the money stationed in the Grayscale Bitcoin Trust still belongs to disruptive technology companies rather than established corporations. The second piece of information is that most of the bitcoin flowing around right now is based in futures contracts rather than the asset itself.
The analysts go on to say:
The frothy positioning in bitcoin futures is one manifestation of this speculative institutional flow. Indeed, bitcoin futures, the preferred vehicle of speculative investors, saw a sharp increase in open interest in recent weeks.
Lagging Regulatory Clarity Is Still an Issue
According to Jesse Spiro – chief government affairs officer at Chainalysis – one of the big problems is that institutional players are still too concerned about regulatory limits, which is why they are still in a speculative aura. He comments:
Regulation itself is not limiting institutional investors. A perceived lack of regulatory clarity is.
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