Bitcoin touched a new record high close to $42,000 recently, but has since cooled off. Now investors want to know what will happen next with the cryptocurrency, and experts are making their predictions. In a recent white paper, Peltz International made several predictions about Bitcoin.
First, the firm predicts that there will be even more mainstream and institutional adoption of Bitcoin. Citing an estimate from Bitcoin Treasuries, Peltz believes institutions hold about 5.5% of all the Bitcoin in circulation.
Bitcoin Treasuries found that 28 publicly traded companies, private companies and mixed funds hold at least $1 million worth of Bitcoin. As of Dec. 28, the top 10 companies were MicroStrategy (NASDAQ:MSTR), Galaxy Digital Holdings, Square (NYSE:SQ), Hut 8 Mining Corp, Voyager Digital, Riot Blockchain (NASDAQCM:RIOT), Bit Digital, Coin Citadel, Advanced Bitcoin Technology and DigitalX.
Corporations Are Adding Bitcoin to Their Holdings
Peltz notes that corporations are starting to add Bitcoin to their balance sheets. For example, on Oct. 8, Square put $50 million of its corporate cash in Bitcoin, amounting to approximately 1% of its assets. The same month, PayPal (NASDAQ:PYPL) started allowing its 346 million users to buy, hold and sell Bitcoin, Ethereum, Bitcoin Cash and Litecoin on its platform.
MicroStrategy bought $250 million worth of Bitcoin in August to store some of its corporate cash. It then purchased an additional $125 million in September and $50 million in December. Massachusetts Mutual Life Insurance bought $100 million in Bitcoin for its general investment fund last month and took a $5 million equity stake in NYDIG, an institutional cryptocurrency firm.
Guggenheim Partners reserved the right for its Macro Opportunities Fund to invest up to 10% of its assets or $530 million into the Grayscale Bitcoin Trust, which invests only in Bitcoin. Peltz also pointed out that inflows into the trust have jumped. The trust reported $19 billion in assets on Dec. 29, compared to $16.4 billion the week before. According to Peltz, the Grayscale Bitcoin Trust’s assets have ballooned 450% over last year.
Paul Tudor Jones on Bitcoin
Paul Tudor Jones has been one of the more outspoken voices on Bitcoin recently. Peltz noted that Jones said he doesn’t advocate owning Bitcoin in isolation, but he does see its potential. The firm noticed that the Tudor BVI offering memorandum had been updated, so it can now hold a low-single-digit percentage of its assets in Bitcoin.
Jones believes Bitcoin futures could be a good way to hedge against inflation due to money printing by the world’s central banks in the fight against the pandemic. In his “The Great Monetary Inflation” investor letter, Jones wrote that the world is witnessing “an unprecedented expansion of every form of money unlike anything the world has ever seen.”
He also said the most compelling reason to own Bitcoin is the upcoming currency digitization, which he believes has been accelerated by the pandemic. Jones considered gold, Treasuries, certain stocks, currencies and commodities before deciding on a growing role for Bitcoin. He said Bitcoin qualifies as a store of value because it offers purchasing power, trustworthiness, liquidity and portability. One of the reasons some investors are attracted to Bitcoin is its fixed supply of 21 million.
More Institutional Products and Services in Development
Peltz also pointed out that more and more products and services are being designed for institutional investors. The firm said American Express (NYSE:AXP) is looking into opportunities to offer digital asset services with the cryptocurrency trading platform FalconX. American Express Ventures invested in FalconX, which focuses on institutional investors.
S&P Dow Jones Index is partnering with crypto data firm Lukka to launch an indexing service for cryptocurrencies. The service will allow clients to create benchmarking tools like custom indices.
Cryptocurrency exchange Coinbase filed with the Securities and Exchange Commission to hold an initial public offering. Its customer base includes over 35 million people in more than 100 countries. They can use Coinbase to use, trade and store cryptocurrencies, as well as earning them. The company has over $25 billion in assets on its platform and more than $320 billion in total volume traded.
If Coinbase moves forward with the IPO, it would further legitimize cryptocurrencies with regulators and the general public. The company would become the first large, public crypto exchange in the U.S.
Push Toward a Bitcoin ETF Adoption
The report predicts more progress will be made on getting a Bitcoin ETF launched in the U.S. VanEck filed with the SEC to register the VanEck Bitcoin Trust. The exchange-traded fund would track the performance of the MVIS CryptoCompare Bitcoin Benchmark Trade and would be traded on the Chicago Board Options Exchange BZK Exchange.
Investors wouldn’t buy Bitcoin directly with an ETF, but rather, would speculate on its financial performance. VanEck would hold the Bitcoin via a custodian for every share issued on the CBOE. The registration is VanEck’s third attempt at registering a Bitcoin ETF with the SEC. The firm withdrew the last application in September 2019 and the prior one in January 2019 following regulatory inactivity.
Peltz notes that all the other Bitcoin ETF applications have either been denied by the SEC or withdrawn in the last several years. The firm suggests that VanEck might be trying again due to the change in SEC leadership or Wall Street’s growing acceptance of Bitcoin.
When Might a Bitcoin ETF Launch?
Anthony Tu-Sekine of Seward and Kissel told Peltz before the VanEck Bitcoin ETF was revealed that 2021 could bring progress on getting one approved. He also said that due to the amount of time it takes for a registration statement to become effective, it is unlikely that a registration can be completed this year. However, he thought that progress could be made.
Tu-Sekine said an ETF would allow investors to invest in Bitcoin without worrying about the issues that go along with it, such as custody. He believes many institutions can’t or won’t buy the cryptocurrency until there is an ETF.
Tu-Sekine also said the SEC has moved toward allowing broker-dealers to serve as cryptocurrency custodians. The agency announced that it would enable crypto-focused broker-dealers to act as custodians for the next five years without being concerned about enforcement action if they follow certain requirements. The SEC is now gathering comments on the matter.
A Bitcoin ETF could be the key to increasing adoption among institutional investors even more. But whatever happens with the Bitcoin ETF this year, it seems clear that institutions will continue to warm up to Bitcoin and other cryptocurrencies.
On the date of publication, Michelle Jones did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Michelle Jones is editor-in-chief for ValueWalk.com and has been with the site since 2012. Previously, she was a television news producer for eight years. She produced the morning news programs for the NBC affiliates in Evansville, Indiana and Huntsville, Alabama and spent a short time at the CBS affiliate in Huntsville. She has experience as a writer and public relations expert for a wide variety of businesses. Email her at Mjones@valuewalk.com.