Although bitcoin has become an institution’s favorite, is it really not harmful?

In the coming year 2020, bitcoin has seen a massive influx of institutions, whose money has triggered a demand crisis at the purchase port, because the liquidity of all sellers has been absorbed. This scarcity has led to a sharp rise in demand for bitcoin and a sharp rise in its price. As seen in the last quarter of 2020, the market value of bitcoin reached $500 billion by the end of 2020. It seems that the dream is becoming a reality. But is this really not harmful? As of the time of publication, the market value of bitcoin surpassed that of JP Morgan, Citibank and the bank Sheng and other traditional financial institutions, so we have won the victory, which is completely correct, and also means that bitcoin has finally become the mainstream asset. However, some facts may be telling us that we have not actually won. Technically, bitcoin is gaining mainstream adoption, but if we look at it carefully, it is not being adopted, but rather the exile of traditional finance. Yes, bitcoin has surpassed the market value of many well-known institutions, but there is an anti logic here, and let’s explore why this may be harmful to bitcoin, because it transforms it into a new asset class. So far, bitcoin has been mainly driven by retail traders, but the recent entry of institutions has eroded this feature. 16.12% of bitcoin’s realized market value is now owned by institutional investors, which means that considering the realized market value of bitcoin, it is about 186 billion US dollars. In fact, grayscale’s bitcoin trust accounts for $16.3 billion of the $19 billion under management. Excluding grayscale, the value is 7.52% owned by institutions, which means grayscale has accumulated $16 billion worth of bitcoin funds, while other institutions only account for about a quarter. Clearly, institutions are not yet fully accumulating; they are already devouring the supply of bitcoin. More importantly, if this situation continues, it will lead to a steady and slow rise in the price of bitcoin. In this regard, it is more obvious that bitcoin models such as S2F or ROI cycle theory are used to describe this, all of which indicate that bitcoin will reach US $100000 per token. As mentioned above, bitcoin has been a retail driven market for a long time. Due to the disadvantages of the traditional market, institutions need to buy bitcoin at a higher cost. There are two main implications: 1. If institutions continue to accumulate bitcoin, they will undoubtedly increase their prices due to high demand and low supply. However, when they do want to arbitrage or reduce the risk of their portfolio, and start to hold cash or transfer it back to their original assets, this will lead to a lot of selling in the market. Basically, the massive entry of institutions will make bitcoin more relevant to the traditional world, as all institutions think the same way and play a role. 2. Now, due to the entry of institutions, the liquidity of sellers is scarce. Similarly, during the period of profit taking, the proportion of bitcoin in institutions in the market is too much, which may lead to the unprecedented collapse of bitcoin. So when institutions are pouring in to invest in bitcoin, we should think about it in reverse. The original text is from ambcrypto and compiled by blockchain knight. The English copyright belongs to the original author. Please contact the compiler for Chinese reprint.

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