Bitcoin CME Futures

In Part 1 of this article, we discussed the factors that led to the arrival of Institutional Investors in Bitcoin. With the relative improvement of sentiment over the past three years, it is time to understand whether there is real steel to this market ingenuity for BTC.

Data from Skew again suggested that in terms of Google trends, Bitcoin is only fractionally as popular as it was in 2017. On the other hand, CME BTC futures reached an Open-Interest of $1 billion for the first time last week. This is monumental development from an institutional point of view since CME caters to only high net worth and accredited traders.

Interest went up as attention followed Bitcoin

While the Open-Interest was a key indicator, eyes started to turn when popular investors started to throw in their hat for Bitcoin. The trend started with Paul Tudor Jones, Billionaire Hedge Fund Manager, commenting,

“I came to the conclusion that #btc was going to be the best of the inflation trades-the defensive trades. Bitcoin has a lot of characteristics of being an early investor in a tech company…it’s like investing with Steve Jobs and Apple.”

Such high praise coming from a personality who has spent over 40 years in the investment sector spoke volumes for the digital asset. After Jones’ remark, other people started to opine on this matter, and recently Stanley Druckenmiller, former chairman of Duquesne Capital, stated,

“Also, unlike gold which is the third-highest reserve assets that central banks own, I can’t imagine central banks, big Institutional investors, businesses, or multinational companies using it.”

Now, many of BTC’s critics often question the Gold-comparison because of its difference in market cap. However, institutional investors were in the mix and running, because of its genuine similarity, and to a certain degree, they noticed an improved version in Bitcoin.

Bitcoin-Gold: Numbers and Time don’t lie

To understand the comparison at a root level, we need to go back 50 years into the financial landscape. In the 1970s, Gold became a favored investment hedge. This was due to large economic uncertainty at that time, and other factors included,

• CPI Inflation was high, 7% hike per year
• Weak US dollar
• Oil prices jumped from $20 to $120 per barrel

In conclusion, investors did not trust holdings in cash and they moved their sights to gold. Hence, Gold turned into a popular ‘store of value’ and its price went up 24 times between 1970 and 1981.

The econometrics chart below explains Gold’s trajectory properly.

So, if an investor had bought Gold in 1970, and held it until now, they would experience a 55 times growth, which is very impressive.

However, let’s shift our focus to Bitcoin now.

Now, in 2020 the situation was a little too similar to the 1970s.

• There is a fear of inflation and debasement of fiat currencies
• China vs US internal struggles were not stable, or ideal
• Coronavirus spread is creating a major economic crisis

Now, the old school traders were looking at Gold again during this time, but BTC made a better case for itself.

Since its first halving in 2012, BTC has risen by a whopping 1400 times in less than 10 years, and continued to rise in 2020, amidst immense financial instability. There is no doubt about which asset had more momentum, and in terms of accessibility, Bitcoin took all the brownie points.

BTC is nowhere close to Gold’s market cap most definitely, but at the speed at which it is growing, the bridge will only get smaller with time.

Ignorance is not Bliss..at least with BTC

There is no doubt that institutional investors will continue to flow capital in BTC. According to a recent Citigroup, report, there is also a possible discussion now that Bitcoin may reach $300,000 by the end of 2021. The figure is absurd because it is another 1527% hike from the present valuation, in less than 24 months.

However, the investors are here to stay and we are at the beginning of a new chapter for Bitcoin.