By now, you probably realized the driving force behind this Bitcoin cycle. Major institutions swallow up the supply, far outpacing the rate that new Bitcoin is being mined. A topic that receives less coverage is whether these institutions will sell their Bitcoin. It becomes especially important as the media continues to cover MicroStrategy’s plans to “never sell,” potentially creating a false impression that every major institution will follow suit.
Examining the institutional sell question requires an exploration of who is buying, why they are buying, and what it would take for these companies to sell the Bitcoin they own. A clear examination of these three questions gives us a good idea as to whether institutions will let their Bitcoin go.
Grayscale The Bitcoin Behemoth
Leading the charge in Bitcoin purchases is Grayscale. Grayscale isn’t buying Bitcoin directly to fill their own pockets. Rather, they buy it so other investors can gain exposure to the asset. Major investors like hedge funds and family offices looking for exposure into the GBTC fund are required to invest a minimum of $50,000 and pay a 2.0% annual fee. Further, according to Grayscale, more than half of U.S. investors are interested in investing in Bitcoin.
Grayscale’s Q3 report revealed the majority of investments (84%) came from institutional investors, dominated by hedge funds. With a duty to return profits to shareholders and a lack of hedge funds publicly announcing the Michael Saylor approach, it seems very reasonable to believe that a lot of GBTC holders want to collect a profit at some point. They will eventually sell.
Michael Saylor and MicroStrategy
The next major Bitcoin purchaser worth examining is MicroStrategy, led by Michael Saylor. MicroStrategy just purchased more Bitcoin at a price of $31,808 bringing their holdings to over 70,784 Bitcoins. Michael Saylor has publicly said that the money to purchase is coming from the company’s cash reserve. This reserve is intended to act as an inflation hedge. Not long ago, they posted a blog stating they are offering senior convertible notes to raise cash with the intention of buying even more Bitcoin – 400M worth.
Currently, MicroStrategy’s 70,784 Bitcoins are worth almost $2.4 billion. Grayscale in comparison is currently holding almost $23 billion. That leaves MicroStrategy owning about 10% of the Bitcoin Grayscale owns. Which makes sense, considering MicroStrategy is a software company and Grayscale is buying to keep up with hedge fund demand. Michael Saylor has increasingly inspired other companies to follow suit, creating the “MicroStrategy Effect.” But that does not mean companies will purchase with the same intentions as Saylor. It is very reasonable to think companies are either simply diversifying into Bitcoin for a return or placing some cash reserves into Bitcoin to act as a hedge against inflation.
Jack Dorsey and Square
Next up to analyze is Square, who recently bought $50 million in Bitcoin. Like Saylor, CEO Jack Dorsey is also a major Bitcoin supporter. Dorsey, however, seems to have a more leveled approach to Bitcoin purchasing. MicroStrategy’s market cap is just a little over 3 billion. Square, on the other hand, is at 99 billion. Square could have easily purchased more Bitcoin than MicroStrategy. But probably won’t, because Square’s investment strategy will more closely echo the traditional purchasing strategies that other major companies will follow.
Breaking down Square’s strategy helps visualize how much of an anomaly MicroStrategy is. It is probably a toss-up as to whether Square will take profit on its Bitcoin because, to them, they have invested a small amount. It is reasonable to believe they may never sell. Their investment could just be a long-term plan to diversify or use Bitcoin as a hedge. Both Square and MicroStrategy are trendsetters, with MicroStrategy being the most extreme in its investment strategy. Most companies will probably take a more cautious approach like Square, placing a small bet on it as a hedge, looking for an eventual return.
Institutions Exiting Bitcoin
The last piece to analyze is how an institution or company would exit its position. The answer is they will likely exit in the same manner in which they entered – thousands of small orders. MicroStrategy’s first purchase of 16,000 Bitcoin took 74 hours with an order occurring every 3 seconds. The purchases were executed in stealth which is exactly how other major players will be filling their buys and sells. The larger the magnitude of Bitcoin a company owns, the longer it will take them to exit their position. This doesn’t necessarily mean the sell-off will occur slowly. It could be quick if all institutions are looking to take profit at once.
Institutions Want Profit
Regardless of all of the reports surfacing about hedge funds exploring Bitcoin, it is our belief most are going to lock in profit at some point, whether they own GBTC or custody their own coins. So, our answer is yes, institutions will sell their bitcoin. But it is reasonable to believe many companies and funds will add Bitcoin to their balance sheet in some denomination as an inflation hedge rather than a short-term profit opportunity, leaving some Bitcoin off the market for good.
And this locked Bitcoin that’s held on the balance sheets of companies and in the hands of retail that aren’t sold will determine the baseline price of Bitcoin after it comes down from its cycle all-time high. So as cool as Michael Saylor is for buying a lot of Bitcoin and publicly announcing he will never sell, he is probably a hero that most buyers big or small will never relate to.