Institutions fell headlong into Bitcoin during the year 2020
JP Morgan’s approach to Bitcoin changed 360 degrees in 2020. That was understandable, however, because it was not just the rise in Bitcoin prices that caught the attention of institutional investors and banks, but also the untying of gold. According to one of the largest banking institutions in the world, JP Morgan Chase & Co, the rise of cryptocurrencies in conventional finance is occurring at the expense of gold. Banks and institutions that previously relied on gold reserves as a refuge are now looking for a better and more profitable reserve.
While gold may have lost its luster to banks, Bitcoin is only starting based on the money that has been pouring into it since mid-2020. As more institutional investors line up to buy Bitcoin against cash and funds raised from other investors , JP Morgan’s quantitative strategies noted that this trend will continue in the long run.
Bitcoin’s RoI of 170% since January 2020 has left a mark on the portfolios of investors and institutions worldwide. The chart attached below highlights the big difference in Bitcoin x Gold and S&P 500 RoIs.
Performance of the Bitcoin, Gold and S&P 500 Index || Source: Wells Fargo
According to that chart, Bitcoin has actually outperformed gold and the S&P 500 index in the past three years, but the past 8 months have been nothing short of a roller coaster. Although the 3 assets moved together with a higher correlation before 2020, the institutionalization of Bitcoin was a game changer and the indexed value reached its peak for the asset.
The returns on the 3 assets were the same for most of 2019, however, the three-digit ROI attracted the attention of many banks, including U.S. Wells Fargo. As the bank was quick to point out about Bitcoin, “The fad usually doesn’t last 12 years.” Entering 2021, the bank expects more advantages from Bitcoin, with a main metric supporting it, including the number of entities with a balance of more than 1000 Bitcoins.
Number of entities with BTC> 1k || Source: Glassnode
This rapid institutionalization shifted the focus from the “value reserve” narrative to the issue of smart money accumulation. That ended up being the theme of Bitcoin in 2020.
In fact, it is interesting to suggest that Bitcoin’s weak correlation with S&P 500 and gold may never have been relevant to the 2020 price hike. The significant price hike for the new ATH may have been entirely driven by demand on exchanges and “scarce supply”.
Retail traders and whales from the 2017 bull run, with the exception of billionaire Masayashi Son, made hold their way into 2020. After halving, trade volume and volatility were conducive to price discovery. Breaking older records, the price stayed above $ 18,000 for longer periods and this led to new price discoveries.
The fall in Bitcoin’s volatility and the rise of its mature market may have led major U.S. financial institutions to take note and put cryptocurrency in their investment strategy reports, as Wells Fargo did.