As of Nov. 20, companies hold around 842,229 BTC or 4.54% of today’s Bitcoin (BTC) supply, according to the Clark Moody dashboard and data from Bitcointreasuries. This is equivalent to a staggering $15.3 billion at the current price of $18,200.
Public companies and institutional investors are continuously accumulating Bitcoin. The spark that began with MicroStrategy’s ambitious $425 million BTC purchase has led to a broad institutional frenzy around the dominant cryptocurrency.
Why are institutions and companies acquiring Bitcoin now?
The demand for Bitcoin from companies and institutions likely comes from its growing reputation as a digital store of value.
Bitcoin is unique in that it can hedge portfolios against inflation, like gold, but has the potential to see exponential growth.
Hedge assets are typically stagnant and demonstrate low volatility over a prolonged period. They are meant to operate as insurance for a diversified portfolio so that when the market dips, the portfolio is protected.
Bitcoin achieves both: it is able to operate as a hedge asset and also expose investors to large growth potential in the long term.
As such, Michael Saylor, the CEO of MicroStrategy, said Bitcoin should not be considered as a payment network nor a currency.
BTC is highly compelling as a store of value, which also does not put it in the crossfire of regulators. Referring to the interview of the United States Securities and Exchange Commission chairman Jay Clayton saying BTC is not a security, Saylor said:
“This is why Bitcoin should be neither a currency, nor a payment network. The principles of humility and harmony dictate that we should allow technology partners to provide for payments, and defer to governments on matters of currency. BTC is a purely engineered Store of Value.”
As long as the perception of Bitcoin from institutions and corporations as an established store of value remains, the demand for BTC would likely remain high.
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Corporations are now holding roughly 4.5% of today’s Bitcoin supply, which is around 18.5 million BTC. This percentage is relatively high considering that BTC has a total fixed supply of 21 million.
When lost or dormant coins are considered, the total supply is estimated to be around 17 million in total.
Companies acquiring Bitcoin as a treasury asset, like MicroStrategy, is particularly optimistic because it shows they are not expecting short-term returns.
Hence, when corporations hold BTC with a low time-preference, it would also result in lower selling pressure over time by decreasing the available supply.
For instance, on Aug. 11, when MicroStrategy announced its initial purchase of $250 million worth of Bitcoin, Saylor said:
“MicroStrategy has recognized Bitcoin as a legitimate investment asset that can be superior to cash and accordingly has made Bitcoin the principal holding in its treasury reserve strategy.”
The prospect of inflation and consistent liquidity injections from central banks further fuel the medium- to long-term outlook for Bitcoin, which some analysts consider the perfect environment for BTC to shine over time.
Meanwhile, to offset the negative economic impact the pandemic has had on the financial market, regulators are continuing to create relaxed financial conditions. For stores of value, like gold and Bitcoin, such a trend is beneficial heading into 2021.
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