Bitcoin Gains Increasing Credibility

Bitcoin’s captured media attention ever since its introduction a decade ago, and it’s here again – setting new record prices multiple times over the past year, it’s set for yet another rise following major investments in recent weeks. Bitcoin’s rapid rises – and sometimes equally-rapid falls – are nothing new on their face, but this institutional attention is something that would have been seen as an unlikely investment just a few years ago.  So what’s changed?

The topic saw some discussion at the February meeting of the Chicago Payments Forum, and it may be as simple as a shift in perceptions; a marketplace that is recognizing bitcoin as a commodity, not a challenger to the dollar, either as a store of value or form of payment.

“It’s a store of value; really a buy and hold investment,” said Peter Stern, Director of Sales and Business Development at CF Benchmarks, the only FCA-regulated bitcoin indices producer. “In terms of payments, it’s not that usable. You can buy it, sell it, and exchange it – and yeah, you can buy Starbucks with it, but that’s not the intention of it. The main thing that makes it valuable is its scarcity.”

And that change in thinking, bringing along a higher caliber of investor, may well be driving the increased attention and market value. MassMutual got involved in December in a big way with a purchase of $100 million – a major change from previous thinking in the cryptocurrency, particularly for a firm that’s been in operation for more than a century – which puts legacy institutions on a path of looking at the currency in the same way as more tech-focused companies like Tesla.

“Firms that absolutely hated it before have seen it’s more stable than it used to be, that it’s a legitimate investment,” Stern said. “Again, it’s still volatile; it’s a risk asset. It is really uncorrelated to anything else in the world, even other crypto assets.”

This change in thinking is a big step towards normalizing trading in Bitcoin, but some hurdles still remain – bank holding has been a major point, and realistically it’s a ways off, even if getting there seems much more realistic now than it did even 12 months ago

“Northern Trust has made a few comments on it, Goldman Sachs as well,” Stern said. “A lot of the first steps for them could be for the banks to add custody solutions, rather than letting customers hold it on their balance sheets. Some of these larger institutions have allowed accredited high net worth clients to hold onto these private assets, but allowing, for example, an integrated Kraken overlay to let clients buy it directly is something they’ve been pretty quiet about. They’re going to be slower, but they are educating themselves on this topic.”

In the meantime, institutions continue to make strides into the space. Many endowments now have a line for crypto companies on their sheets, listed alongside other tech-focused venture capital funds — investments that could make for an easy pivot towards Bitcoin itself as more and more high-quality investors get into the market. It’s a long way from where things started for the cryptocurrency.

“It took years to get these bad actors and people using it for the wrong reasons out of the system,” Stern said. “What we need now is a real, clean way to buy it.  We’re hopeful an ETF for the US market is on the horizon.”

Jessica Purdy