Does the price of Bitcoin rise without support? The institutional push of cryptocurrencies may be overvalued

In the history of financial markets, there are only a few tradable assets that have conquered this frontier. Currently, Bitcoin ranks eighth among all tradable assets in the world, including stocks and commodities. Among the top 10 tradable assets, it ranks just above Tencent, which Bitcoin flipped on its eventual rise above the trillion-dollar mark, below which Facebook is, which it flipped earlier this month.

Bitcoin is one step away from surpassing Google and two of the silver. Considering the history of commodities such as silver and gold, which have been traded for centuries, the history of Bitcoin is extremely short, as it began in January 2009 as more than just an experiment. Even stocks like Google and Tencent have histories of more than two decades, while Apple and Microsoft have more than four decades.

Was the final wave of Bitcoin organic?

When looking at the moment when Bitcoin finally broke this milestone, it is clear that there were no major institutional announcements leading to the increase in market capitalization. The Bitcoin Coinbase Premium Index, compiled by the on-chain data provider CryptoQuant – when the premium is high, it indicates a strong cash purchase on Coinbase- suggests that at the time this breakthrough occurred, Coinbase’s premium was negative.

Ki Young Ju, CEO of CryptoQuant, explained to Cointelegraph what this suggests: “Buying power appears to come primarily from stablecoin whales and retail investors, not institutional investors or high-net-worth individuals in the United States.”

At long last, Bitcoin (BTC) surpassed the trillion dollar cap border on February 19, tripling its market capitalization in just three months. This major milestone came nearly a year after it sank to less than $ 100 billion on March 12, 2020, better known as “black Thursday” in the crypto community.

It is also important to consider the proportion of BTC actually in the circulating supply before assuming the price implications of Bitcoin volumes. According to Glassnode’s research, 78% of the supply of Bitcoin is illiquid, which implies that the economics of the supply-demand of the asset is only a small aspect of how its price influences.

Luckily, or unfortunately, for the market, the price of Bitcoin is still largely dependent on sentiment. This is evident in the fact that Robinhood has already acquired more than 6 million retail cryptocurrency investors this year alone.

While acknowledging the presence and overall influence of institutional investors, Jay Hao, CEO of crypto exchange OKEx, told Cointelegraph that a Twitter trend could be responsible for the trillion dollar push: “This frenzy that included Elon Musk, Michael Saylor, and Sen. Cynthia Lummis, could have helped BTC break out of the trillion-dollar market cap without any final push from institutional investors who generally don’t buy when markets look oversized. . “ He further added:

“At this point, many technical indicators suggest that BTC was starting to look overbought, as retail traders jumped on fueled by the ‘laser eyes’ trend that hit Twitter with participants shooting 100K BTC, including many top CEOs and politicians. “

Institutional stake in Bitcoin could be overvalued

Cryptocurrency venture capitalist Brock Pierce outlined to Cointelegraph that, in his opinion, institutional participation could indeed be “overvalued”, but it is still present as evidenced by its long positions:

“There has been a mix of retailers and institutions and other factors that have pushed markets up. In terms of on-chain metrics, we are seeing large amounts of bitcoin coming off exchanges and also miners that are reluctant to sell – both serve to reduce supply and reduce any selling pressure in the market. “

In addition, he opined that companies are embracing “programmatic buying” in their attempt to reach a certain allocation. What’s more, As both Pierce and Hao pointed out, it is often market sentiment that gets retail investors involved, thus causing major price movements in the BTC market.

Thu he pointed recently on Twitter that featured miners often have private wallets separate from their mining wallets; therefore, its power may be greater than chain analysis may suggest. In addition, he clarified the implications this may have on the price of Bitcoin:

“Affiliate miners (whales) seem to sell Bitcoins on exchanges, not through OTC deals. They have personal wallets in addition to mining wallets, so it is important to see the trend, not an absolute number. The significant exit occurred when the price was 58k, and lately it has cooled off. “

Are institutions still buying the fall?

After Bitcoin surpassed the trillion dollar mark, it quickly hit its all-time high of $ 58,352 on February 21. But the next day, the price of BTC fell 20% along with other crypto assets in a correction that is now known as “Bloody Monday” in the crypto community. Its price continues to trade between $ 45,000 and the previous support level of $ 50,000.

During this price drop, it appears that institutional investors have taken it as a green light to buy the decline in bulk. Jack Dorsey’s Square bought another round of Bitcoin, roughly 3,318 BTC for $ 170 million. Square first bought Bitcoin in October 2020, buying 4,709 Bitcoin for about $ 50 million at an average price of $ 10,618 per BTC. Square’s motivation to buy the downside in a second investment round could be driven by the fact that its earnings in the first investment round are around 400%.

In addition to Square, Michael Saylor’s MicroStrategy bought another $ 1 billion worth of Bitcoin, another 19,452 coins at an average price of $ 52,765. This investment in Bitcoin comes just six months after its initial investment of $ 250 million in August 2020.


Now, MicroStrategy owns more than 90,000 BTC, which is 63% of its total market capitalization. Saylor announced that MicroStrategy “remains focused on our two corporate strategies for growing our bitcoin acquisition and holding and business analytics software business.” Hao further commented on the purchase:

“MicroStrategy’s debt offering and subsequent purchase of an additional $ 1 billion of BTC was a massive announcement, although we already know what a great Bitcoin bull and evangelist Michael Saylor is! […] Institutional investors do not chase trends, rather they wait for corrections to occur and buy at an acceptable price. I hope that soon we will hear about more and more institutional activity. “

David Donovan, executive vice president of Publicis Sapient – digital transformation firm – expressed to Cointelegraph his reservations regarding the lack of regulation, especially since investing in BTC carries risk and volatility: “Individuals should not invest their money in bitcoin if they are not in a strong financial position, as there is no FCID protection for stored bitcoin at this time.”

JPMorgan Chase became the latest financial giant to cautiously back Bitcoin when defended in a note to clients that “investors can probably add up to 1% of their allocation to cryptocurrencies to achieve any efficiency gains in overall portfolio risk-adjusted returns.” Most would see this as a bullish announcement; However, as the price of Bitcoin continues to struggle below $ 48,000, it adds to the narrative that the influence of institutional investors in the market could be overvalued in the minds of the average crypto consumer.

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