Besides storing bitcoin, how can institutions make money quietly in a bull market?

In fact, it's not just 2020 that each round of bitcoin price spikes has been accompanied by an institutional entry.

In late 2013 the currency break through $1000 for the first time, silicon valley venture capital circle began to high-profile "entry", such as the famous Internet investment institutions Union Square Ventures co-founder, early in 2014, the New York of the currency regulation policy of hearing, the first sing many ideas "currency would like the Internet, and will continue to investment". CME, the world's largest derivatives exchange, was the first to launch a compliant bitcoin derivatives trading service in December 2017, when bitcoin prices topped $19,000.

It can be seen that the "institutionalization" of the digital currency industry is not only a feature of this bull market, but a long-term trend.

The difference is that while previous entrants were mainly from the venture capital industry, this year's group is more diversified.

Financial and Internet giants are at the forefront of accelerating the "institutionalization" of the digital currency industry. In 2017, there was a cluster of different buyers. This year, in addition to the usual institutional buyers, such as hedge funds and venture capital, there were also more institutional sellers in the market, including mining services, mainstream mobile payment companies, Internet brokerages, traditional market makers, etc. These platforms are trying to meet the greater market demand.

The logic of the buyer's market is relatively simple, optimistic about the development of the sector and buy hold. The seller's market, on the other hand, generates profits by providing relevant services and has a mature business model.

Institutional admission represents "service specialization". MicroStrategy, an American business intelligence listed company that has been highly vocal in social media and has been buying bitcoin in large quantities, has not been found by the market by using the institutional seller trading service of Coinbase to buy Bitcoin at high frequency through the call call algorithm. Michael Saylor, CEO of MicroStrategy, also claimed that he made as many as 78,388 underchain trades to buy 21,454 BTC. Coinbase's service helped MicroStrategy save millions of dollars in costs, and as the price of bitcoin rose, MicroStrategy's initial foray into the market paid off.

From traditional financial institutions to Internet companies, profit strategies of institutions do not solely depend on the unilateral rise of the price of Bitcoin, and some institutions even have never held bitcoin. For example, CME Globex, the world's largest derivatives exchange, currently manages nearly $1.4 billion in futures contracts. Yet it has not held or managed a single real Bitcoin for three years, instead making a profit by collecting dollar fees from buyers and sellers of contracts. The profit mode of various institutions has become more and more diversified and has a positive effect on the industry from the simple bullish currency price waiting for its rise.

In addition to making profits from bitcoin-related services, high-profile bullish bulls are not unique either. For example, mobile payment giant Square has purchased about 4,700 Bitcoins this year, and business intelligence company MicroStrategy has also purchased 70,000 bitcoins in batches this year as a medium - and long-term asset allocation of the company, which is disclosed in the company's public financial statements. Ceos have publicly expressed their interest in its long-term development on social media. For example, the CEO of MicroStrategy once introduced his investment experience of Bitcoin to Elon Musk on Twitter.

In addition to long-term bitcoin bulls, there are also speculative trading houses that have a big impact on the market.

According to An analysis by Dovey Wan, founder of Prpitive Ventures, there are three broad categories of compliance agencies currently involved in bitcoin.

The first type belongs to speculative institutions, which tend to be short term. Most Wall Street institutions are of this type. For example, Ark Capital, a professional hedge fund, now has a large trading volume.

The second category is the investment institutions that earn the dollar standard. Many grayscale investors enter the bitcoin world through their trusts and then sell out in the profit cycle. They pay more attention to the investment yield of the legal currency standard.

The third kind is the organization configuration class, as recent MicroStrategy category listed companies put the COINS as asset allocation, may affect the carrying cash reserves more manages its strategic reserves of listed companies, because the currency price and low correlation trend of dollar assets, this type of configuration mechanism tend to hold the currency for a long time.

According to an analysis of its Greyscale premium arbitrage on data analytics platform Skew, Greyscale's BITCOIN trust GBTC share has long been trading at a sizable premium to net asset price (NAV) on the secondary market, with an average premium rate of 19% last year.

The CME, which also caters to compliance agencies, allows investors such as Renaissance Quantitative Funds to go long or short bitcoin futures contracts in dollars without owning the bitcoin physical currency. With CME leveraged funds' net short position topping $460 million, Mr Skew suggested that hedge funds are not holding 'naked' bitcoin positions, but are carrying out 'grayscale premium' cash carry arbitrage.

And it is not just hedge funds that are attracted by the high premiums on their Bitcoin derivatives, but also many traditional market makers such as Akuna and Jump Trading. Marketmakers, who use algorithmic trading to provide liquidity for bitcoin and receive rebates from the platform, do not predict the rise or fall of the currency's price. They may be entering because they can earn higher returns on digital money than in traditional markets.

Large holders of GreyScale's trust shares are BlockFi and Three Arrows Capital, a digital currency lending platform and a blockchainfocused hedge fund investment firm respectively, which are the most active lenders/borrowers in the market.

Greyscale's use of its trust premium seems to enable both deposit-taking and loan-lending parties of this size to obtain a high interest rate. SEC document 13G shows that they are large-denominators of the trust with a share of more than 5%.

In December 2020, the digital currency field made the front pages of the mainstream media again and again, just like the bull markets of 2014 and 2017, which added more well-known companies with "prominent names". Among them, there are listed technology companies that are bullish for a long time and participate in their asset allocation, and there are quite a few short and medium term participants. Although the participating institutions are not simply buying bitcoin for profit to rise in price, in the long run, these participants are conducive to making this emerging ecology more vibrant.

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