Since early 2020, institutional demand for Bitcoin (BTC) has been steadily increasing. In the second quarter of this year, data shows that the appetite for BTC has increased significantly. According to Grayscale’s cryptoactive fund, its products registered an inflow of $1.4 billion in capital. The investment company is best known for the Grayscale Bitcoin Trust, which allows U.S. institutions to gain exposure to Bitcoin through an over-the-counter, publicly traded stock.
If demand for Bitcoin increased steadily in the first three months of 2020, it skyrocketed from March to June. One possible explanation for the sudden increase in attraction to Bitcoin is its fall in early March when the price of Bitcoin briefly dropped below $3,600 on BitMEX. More than $1 billion in futures contracts were settled, but in the next 72 hours, volumes in the retail markets increased substantially, especially on platforms like Coinbase.
Like their retail counterparts, institutional investors probably bought large amounts of BTC after the big correction. The assets managed by the Grayscale Bitcoin Trust increased from $1.577 billion to $3 billion, from 17 March to 13 May.
Overall, three key data points show that institutional demand for Bitcoin has been growing, especially in the second quarter of 2020.
Grayscale records $1.4 billion in revenues in the first half of 2020
In a single quarter, Grayscale’s products recorded an inflow of nearly $1 billion. The quarterly inflow of $905.8 million brought the total inflow in the first half of 2020 to $1.4 billion. Grayscale’s semi-annual report states: „Total investment in Grayscale’s product suite reached $905.8 million in the second quarter of 2020. To put it in context, that’s almost 1.5 times the capital raised throughout 2019, and after a record quarter in 1Q20.“
The Grayscale Bitcoin Trust is considered an accurate metric for measuring institutional demand for Bitcoin, as the U.S. and Europe have not yet approved a publicly traded fund around Bitcoin or crypto currencies. The absence of U.S. and European listed funds reduces the options for reputable and institutional investors. Institutions can choose from the Grayscale Bitcoin Trust, custody services and direct OTC trading. But custody services are not widely used, and direct OTC trading can cause security vulnerabilities.
PayPal will offer crypto currency trading through its partnership with Paxos
Mainly due to the lack of options, institutions usually use the fund to gain exposure to Bitcoin despite its high market premium. Grayscale noted that 84% of investments came from institutional investors in the first half of 2020. The record quarterly inflow into Grayscale’s products and the fact that the vast majority came from institutions suggest that institutional demand increased in the second quarter.
But in recent weeks, the pace of Bitcoin accumulation by Grayscale has slowed. The investment company’s filings with the U.S. Securities and Exchange Commission (SEC) showed that the company has not bought a single Bitcoin Profit in three weeks. Speaking to Cointelegraph, a Grayscale spokesman clarified that the fund was placed in a period of administrative quiet, which is also called a „waiting period“ by the SEC. The cessation of purchases is temporary, and does not necessarily mean that the institutions have stopped buying BTC.