Opinion Institutional Investment Drive in Bitcoin Edging Closer

Institutional Investment Drive in Bitcoin Edging Closer

October 10, 2020

Square is a payment company that was funded by Jim McKelvey and Jack Dorsey. Dorsey is of course the famous name behind Twitter and a tech-oriented and disruption-inclined billionaire. Recently, their company invested 50 million USD into bitcoin. This massive institutional investment came as it tries to diversify its balance sheet. Like those of any US company, it mainly holds USD, but Square decided to change that.

Now, it is just the latest of the big companies who are putting big sums of fiat money into the biggest cryptocurrency in the world. The news is huge not just because it launched the new price revival for the crypto market, including altcoins like ethereum’s ETH, but because it signals another major investment by an institutional player. 2020 in particular is an important year for such a move because it saw arguably the hardest critics of the cryptocurrency space, along with its biggest steps forward in the recent three or more years.

All of this takes place in a timeframe that is saturated with insecurities and big changes, most of them brought on by the pandemic. Even though that would mean for most industries a time to hunker down and wait for the storm to pass, for bitcoin and the wider cryptocurrency space, the period is almost ideal for further disruptions of the traditional financial system.

4,700 Bitcoin Tokens

Square revealed that it bought just over 4,700 BTC tokens for a total price of 50 million USD. This transaction took place last Wednesday, as the San Francisco-based company started a day later. As a part of the same announcement, Square also put out a whitepaper. This document is similar to those that are usually published along with cryptocurrency products.

The three-page document detailed how the transaction took place, but also the company’s plans to stop, insure and then account for all of the bitcoin tokens in their upcoming financial statements. The announcement also pushed the stock of Square up by 1.6 percent. The company, which had its public outing moment in 2015 is now trading at its all-time high. Its value also nearly went up three times this year alone.

Forward Thinking

Square did not buy this massive amount of crypto tokens out of the blue. It has been tightly connected to the crypto domain, just like its founder Jack Dorsey. In 2018, it rolled out the option for its users that allowed them to directly trade in crypto using its product Cash App. That proved to be a great decision as many of its users were interested in that option, even though they are not a part of the regular demographic that should be into crypto. For many years, these were esports players, tech enthusiasts, libertarians and other groups whose otherwise baseline economical outlook coincided with the main elements of cryptocurrencies.

Now, most of the traders are ordinary individuals who simply see the potential to either generate a profit or to attain some additional characteristics of financial deals that are not covered inside of the regular fiat currencies. This shows that Square and its Cash App possess the ability to think ahead of the current trends and come out on top thanks to the same ability. Right now, they seem to believe that a massive institutional investment in bitcoin is something that could become a huge benefit in a couple of years.

No Regulatory Hurdles

The company used this opportunity to invest around 2.5 percent of its cash on hand, at least according to the latest report from Square, to purchase bitcoin. This comes from around 2 billion USD it has in liquid assets as of June 30. Immediately, the bitcoin price shot up after the report came out and had a climb of 2.3 percent in a 24 hour period. Naturally, this does not mean that the news will launch a new rally or anything like that, but the movement was still in direct correlation with this happening.

That is a rare moment in crypto markets, where it is usually hard to make a straight line between a price change and an event in the outside world. Also, the investment of Square once again shows that there are no regulatory hurdles between companies looking to invest in crypto and exchanges that are ready to make such massive moves of money in their name.

In 2020, over 20 financial institutions revealed that they had bitcoin through the Grayscale Bitcoin Trust. This shows that Square is not the only one in the same mode of thinking (and doing) but also that companies no longer need to worry about the legality of it all. Today, the same process is just another financial vehicle that a company can use to diversify its portfolio. It is also clear that a lot of them are taking up this opportunity, even though many might not want to publicly reveal that they are doing just that.

USD Alternatives

For some time now, there is a sense that in many quarters of the world, individuals, companies and even central banks and countries are trying to pivot away from the dominance of the United States dollar. That process is connected to the overall weighing of the US power and influence across the globe, but also the fact that it makes more financial sense to diversify one’s portfolio. The same came from the management of Square. Inside of their whitepaper, they stated that they view bitcoin as an instrument that will provide a higher level of global economic empowerment.

According to them, bitcoin can offer a means for individuals to participate in the global system that is monetary in nature and yet completely free of the present traditional network of banks and other financial institutions. This will allow them to have a larger level of control as well as a better shot at securing their own financial future. Moves like the one Square made only show that this process is picking up speed in the corporate quarters as well.