Institutional adoption of bitcoin may prop up its price and see currency used as digital gold

Following moves by firms such as Tesla, Visa and Mastercard to incorporate bitcoin into their payments infrastructure, institutional banks appear to be getting in on the bitcoin act, according GlobalData, a leading data and analytics company. This marks the beginning of a new era for bitcoin - a distinct shift away from a cryptocurrency driven by retail investors to one with more mainstream adoption.

Danyaal Rashid, Thematic Analyst at GlobalData, comments: “Big names from BNY Mellon to Anthony Scaramucci’s Sky Bridge Capital, which has pumped almost $500m into bitcoin over the past five months, are adopting the cryptocurrency. Furthermore, Morgan Stanley is weighing up whether to bet on bitcoin and JP Morgan will look at offering bitcoin trading if there is client demand. These banks and large companies are interested in bitcoin for good reason – aside from the hype.

“In an era of 0% interest rates, money kept on companies’ balance sheets is earning no return. Bitcoin can provide a much better source of return if companies want to diversify their holdings. This is even more relevant given the high levels of liquidity we are seeing. Bitcoin may increasingly be used as a defensive asset to hedge against inflation and forex volatility, essentially making it digital gold. 

“In the long run, institutional investors could help to stabilize the price of bitcoin. However, their entry into the market could pump up the price significantly, in the shorter term, for two main reasons. Banks are likely to engage in much larger trades than individuals, moving millions of dollars rather than thousands, putting additional upward pressure on price. Secondly, these institutions will have a huge network effect on the crypto. Big institutions will both legitimise bitcoin, in lieu of government control, and enhance the size of the network, which is the key factor propping up the price of bitcoin.”