What impact will American companies hoarding $10 billion in Bitcoin have on the market? (www.blockcast.cc)

Author/LongHash Joseph Young

Source/LongHash

Benefiting from the increase in investment and the rise in bitcoin prices in October, US listed companies currently hold $10 billion worth of bitcoin. This figure shows that institutions are eating away at the limited supply of Bitcoin in circulation-currently, these US listed companies alone control about 5% of Bitcoin in circulation.

However, the current pace of institutions hoarding Bitcoin also raises some concerns. First, if this trend continues, a small number of institutions will eventually control a large portion of bitcoin in circulation. Since the supply of Bitcoin is capped at 21 million, supply problems may arise in the future. Second, some analysts, including option traders under the pseudonym Theta Seek, said that this could put Bitcoin at risk in the long term.

But in the short to medium term, the benefits of this approach far outweigh its drawbacks. However, in the next decade, when Bitcoin is used as a store of value and eventually evolves into a global currency, this approach will lead to security risks. Theta Seek stated, “598,000 BTC may be confiscated by the US government. This is not a good idea.”

The benefits of increasing Bitcoin holdings by listed companies

On September 14th, MicroStrategy CEO Michael Saylor publicly announced that 16,796 BTC has been purchased at a total price of 425 million US dollars, increasing the total amount of BTC held by MicroStrategy to 38,250 BTC.

As of the time of writing this article, with the price of Bitcoin climbing to $13,200, the value of 38,250 BTC is $504.9 million. If Bitcoin can rebound to a historical high of $20,000, as predicted by many industry leaders, then the value of Bitcoin held by Weice will exceed $700 million.

From two perspectives, it is positive for listed companies to allocate part of their funds to Bitcoin or include it in their investment portfolio. Over time, the facts will persuade more listed companies to follow in the footsteps of the pioneers, especially when Bitcoin price momentum is consolidated. This also verified the view that Bitcoin is regarded as a mature store of value and a potential safe-haven asset.

In recent weeks, the correlation between Bitcoin and U.S. stocks has further declined. The correlation between Bitcoin and the US stock market was as high as 80%. Throughout October, US stocks performed poorly, but Bitcoin has so far achieved a 22.8% increase on major exchanges including Coinbase. Bitcoin’s weak correlation with other risk-taking assets strengthens its image as a store of value.

As LongHash’s previous report pointed out, the growing demand for Bitcoin by institutions has already had a massive impact on the exchange market. Since August, platforms such as Coinbase, LMAX Digital, Bakkt and CME have ushered in continuous growth in transaction volume. Correspondingly, the crypto market has also ushered in a unique market dynamic. On the one hand, Bitcoin has risen independently, on the other hand, other encrypted assets in the market have plunged.

Possible problems caused by large holdings of Bitcoin by listed companies

Although the current institutional enthusiasm for Bitcoin brings more advantages than disadvantages, there are still some hidden worries in the long run.

At the moment, the total value of Bitcoin held by listed companies is 10.3 billion US dollars. 22 companies have a total of 786059 BTC. But as prices rise, the dollar value of these bitcoins will increase.

The predictions of the final bull market for Bitcoin are inconsistent between investment companies and industry leaders. The Winklevoss twins, the billion-dollar Bitcoin investor, emphasized that they expect Bitcoin’s market value to eventually match that of gold. Since the market value of gold is 9 trillion US dollars, if the prediction comes true, the price of Bitcoin will reach 500,000 US dollars.

“If we are correct in taking the value of Bitcoin against the benchmark gold and that Bitcoin can stay on this path, then the prediction of the Bitcoin bull market will underestimate it by 45 times. In other words, the future of Bitcoin The price can appreciate 45 times, which means that we will see the price of Bitcoin reach $500,000,” wrote Tyler Winklevoss, CEO of Gemini Exchange.

At a price of 500,000 US dollars, the total value of 786,059 BTC will reach 393 billion US dollars, because the bitcoin held by listed companies will obviously increase as the price of the cryptocurrency increases.

But the problem here is that as time goes by and the value of Bitcoin rises, ordinary investors will face a shortage of supply. This will cause the price of Bitcoin to rise rapidly, but it may also make it difficult for retail investors and ordinary investors to buy Bitcoin. In a market that has been heavily dominated by giant whales and high-net-worth individual investors, if institutions continue to hoard Bitcoin, it may cause problems.

But in the next few decades, when Bitcoin is recognized as a currency and the central bank regards it as a threat to fiat currency, there will be a hidden danger of asset confiscation.

However, the sentiment surrounding the purchase of Bitcoin by listed companies is still positive to a large extent, because the industry executives do not expect Bitcoin to become the currency used in transactions in the short term.

Billionaire Mike Novogratz, CEO of Galaxy Digital, stated that he doesn’t think Bitcoin will be used as a currency in the next five years. At present, Bitcoin is used as a store of value and a tool to hedge against inflation of legal currency. Investors like Paul Tudor Jones describe Bitcoin as the best way to hedge against inflation in the short term, acknowledging that it is a safe-haven asset.

Therefore, the impression of Bitcoin as a safe-haven asset is much higher than that of its currency. Coupled with the development of central bank digital currency, the government is unlikely to take extreme measures to combat Bitcoin.

“To be honest, I don’t think Bitcoin will be used as a currency for transactions in the next five years. Bitcoin is now used as a store of value. People are worried that the policies of central banks will devalue the legal currency. And even if We turn to the digital dollar, it may be available soon, but there will be a lot of stablecoins in the United States,” Novogratz said.

It is also said that the government is unlikely to take tough measures against Bitcoin, because this will hinder the development of digital currency and blockchain technology at the technical level.

Currently, Federal Reserve Chairman Jerome Powell (Jerome Powell) is publicly discussing the prospects of central bank digital currencies. In this case, regulators are more likely to be cautious about Bitcoin and the promotion of blockchain development.