It’s a good time to be part of the crypto business. Not only did Bitcoin, the world’s largest cryptocurrency, walk to hit yet another ATH on the charts, but its market cap also broke the $1 trillion mark yesterday, an amount that was unthinkable just over two months ago.
What led to such a turnaround? Well, the solution is not limited to a single factor alone. But what has been the greatest improvement in the last few months? Perhaps the answer is – Institutional investment.
Today, according to many, the flood of institutional investment that we’ve seen recently is due to MicroStrategy declaring Bitcoin as its main treasury reserve asset back in August 2020. The “Michael Saylor Effect” was named by a newsletter. Ergo, it’s worth evaluating if MicroStrategy, or the other public companies that placed Bitcoin in their balance sheets, have any regrets.
After all, there were those who raised an eyebrow when MicroStrategy made a big bitcoin decision. Huge danger, some have said. Not to the world’s largest business intelligence firm, which is also publicly traded. For once, crypto-sceptics and business non-believers were united in their ridicule.
If @michael_saylor really wants to protect retained earnings from a decline in the value of the U.S. dollar, there are many other currencies Microstrategy can hold. If he’s worried all fait currencies will lose value, he could hold #gold. There’s no reason to gamble on #Bitcoin.
— Peter Schiff (@PeterSchiff) December 5, 2020
To consider and answer this question, the Bitcoin Treasures Index of Ecoinometrics is a good place to start. The index accounts for a large number of public entities holding a crypto-asset on their balance sheets. This includes the likes of MicroStrategy, Marathon Patent Party, Square, Riot Blockchain and Tesla.
According to the same,
“…if an investor put capital in the Treasuries Index starting from the beginning of the 3rd halving, a nice 12x profit would be bankable in less than a year.”
Remember that too – while MSTR is up by 600 per cent, Marathon is up by 5500 per cent, and Riot blockchain is up by 3500 per cent.
Here, it is worth presenting proof that it was MicroStrategy that really opened the door to institutional investment in Bitcoin. For the same reason, the Average Transaction Size statistic is worth looking at.
The same reached a high of $440,000 a few days ago on February 16. By the way, this was the same day that MicroStrategy revealed plans to buy more Bitcoin. In fact, the Average Transaction Size increased by more than 14 per cent in 24 hours.
Any questions as to whether MicroStrategy would get back to Bitcoin were put to rest on the 16th after the firm revealed that it would sell $600 million worth of convertible senior notes to raise funds to purchase more Bitcoin. It is also worth noting that MSTR’s shares declined by a relatively insignificant 7 per cent as soon as the news came to the fore, despite the fact that it increased by 5 per cent in pre-market trading.
For several, however, the depreciation was merely a blip, with most believing that this was the development that eventually moved BTC past the $50,000 mark.
What is more, lately, the 30-day correlation coefficient has highlighted the striking relationship between the world’s largest cryptocurrency and the assets listed above. The same was emphasised by IntoTheBlock’s correlation matrix, which also revealed that Marathon Patent Party, MicroStrategy and Square all share a coefficient greater than 0.9.
Other ratios also seemed to suggest something similar. Adding the Crypto-Analytics platform to its current newsletter,
“The similarities between Bitcoin and crypto-related equities are also visible in risk-adjusted indicators such as the Sharpe and Sortino ratio.”
These ratios may be used to measure the performance of equity investments, in this case crypto-related equities, versus risk-free investments.
The higher the Sharpe or Sortino ratio, the better the risk-adjusted return of the asset. According to IntoTheBlock, the likes of MicroStrategy and Marathon have both reported positive ratios on the above scale, in line with how well Bitcoin is doing.
Therefore, one might say that while Bitcoin has mounted on maps, so do these firms. In fact, it would be easy to say the contrary, with the connection between the two possibly angling towards a relationship.
This brings us to the question, who needs the other more, Bitcoin or Institutions? That’s a tough question, but it could be better answered from this viewpoint,
“… institutions coming into Bitcoin might be old news now. Institutions adding Bitcoin to stay relevant, however, could be the next big narrative going forward.”
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