Bitcoin prices surged this past week, following a couple weeks of relative stability. The rally broke $24,000, far exceeding records of approximately $20,000 set in December of 2017. At the time of writing, Bitcoin was trading around $22,800 and is up 218% since the start of 2020. The Bitcoin rally is more than a response to a risk-off investment environment, as Bitcoin continues to outperform gold by a large margin. We are continuing to see institutional investors seeking exposure to Bitcoin, with direct allocations to the currency, as well as investments in companies operating in the Bitcoin space. Additionally, U.S. senators are close to reaching an agreement on a $900 billion coronavirus-relief package, forcing many investors to seek out inflationary hedges.

  • Ruffer Investment is the latest investment manager to disclose a Bitcoin allocation, confirming an investment of $744 million was made last month. The London-based investment giant allocated roughly 3% of their $25 billion portfolio to Bitcoin. This allocation was primarily funded by lowering the firm’s exposure to gold. Ruffer cited macro events, such as negative interest rates and global public debt due to COVID-19, as motivating factors for the investment, and noted that “the current macroeconomic environment is set up perfectly for an asset that blends the benefits of technology and gold.” Ruffer’s disclosure supports a report published by JPMorgan earlier this month that predicted Bitcoin will cannibalize gold’s market capitalization over the next decade.
  • Companies in the Bitcoin space are receiving interest from institutional investors as the market continues to grow. Coinbase announced plans to IPO, in a deal that many investors believe will be valued at over $20 billion. Goldman Sachs is the likely candidate to lead the IPO. Although Goldman Sachs has not yet made a direct allocation to Bitcoin, this deal represents a significant change of sentiment for one of the world’s most important financial institutions.
  • Japanese financial giant, SBI holdings (Previously a subsidiary of SoftBank Group), acquired B2C2 last week. The deal is a first among major financial institutions, and is expected to increase liquidity in Bitcoin markets. SBI’s acquisition speaks to a broader trend of financial institutions scrambling to gain exposure to Bitcoin markets as price levels continue to soar.
  • U.S. senators reached an agreement on a coronavirus-relief package worth $900 billion. The resolution came after both parties agreed on updates to the Federal Reserve’s emergency lending powers, which will have significant impacts on the Biden administration’s ability to deploy capital. Both the house and the senate are expected to vote on the package Monday night. The aid package will represent a significant expenditure for the U.S. government after already recording a budget deficit of $3.1 trillion for the fiscal year ended in September, more than double the record set during the financial crisis of 2009. The anticipated spending reinforces investors’ desire for inflationary hedges.

Market Outlook

The recent and rapid increase in the price of Bitcoin is substantiated by the institutional demand that is driving the price move. Large institutional buyers continue to endorse the currency in a steady march towards wide scale adoption. The legitimacy of these endorsements is self fulling, resulting in greater trust of Bitcoin among many other parties. As the global fight against COVID-19 rages on, fiat currencies around the world are expected to depreciate significantly. This outcome highlights a key use case of Bitcoin as a store of value, and is likely to drive significant demand.