Have $93 Million? You May Be Able to Boost Bitcoin’s Price by 1%
Bigger investments into Bitcoin may be able to move its price significantly.
The largest cryptocurrency has doubled so far in 2021 as institutions and retail investors pour in cash, not to mention Tesla Inc’s $1.5 billion purchase and all the buying from MicroStrategy Inc. JPMorgan Chase & Co. strategists have estimated that institutional flows into Bitcoin are up 20% in dollar terms this quarter from the prior period, while retail has increased 90%. And that intake may be moving the price of Bitcoin more than it would some other assets, according to strategists at Bank of America Corp. including Francisco Blanch and Savita Subramanian.
“Bitcoin is extremely sensitive to increased dollar demand,” the BofA strategists said in a note Wednesday. “We estimate a net inflow into Bitcoin of just $93 million would result in price appreciation of 1%, while the similar figure for gold would be closer to $2 billion or 20 times higher. In contrast, the same analysis for the 20-year-plus Treasuries shows that multibillion money flows do not have a significant impact on price, pointing to the much larger and stable nature of the U.S. Treasuries markets.”
Cryptocurrencies have been gaining credibility as an asset class as a robust products and derivatives market develops, institutions come into the space and prices appreciate. Bitcoin is seen by some as an appealing digital alternative to gold, or a potential refuge from inflation due to its limited supply. Still, some see a speculative bubble, and concerns loom about issues like energy usage and actual value. BofA notes that since about 95% of total Bitcoin is owned by the top 2.4% of addresses with the largest balances, it’s “impractical as a payments mechanism or even as an investment vehicle.”
It’s also the case that some of the price movement in the still-volatile and less liquid asset may simply depend on market conditions at the moment.
“Although much of Bitcoin’s price action is dictated by speculative sentiment, large and rapid moves up or down can be explained by a lack of two-way liquidity at that particular point in time,” said Jeffrey Halley, senior Asia-Pacific market strategist at Oanda, in an email Thursday.
Another factor possibly boosting the price is that the biggest holders are staying in, according to BofA, which noted that many so-called “whales” or institutional account holders are actually buying Bitcoin rather than selling it. “Looking at detailed blockchain records, we find that the largest addresses have not been selling in aggregate since the pandemic began,” they said.
To them, however, it all comes back to the money coming in.
“What has created the enormous upside pressure on Bitcoin prices in recent years and, particularly, in 2020?” BofA asked. “The simple answer: modest capital inflows.”