There has long been speculation in the crypto space that institutional investment would be the driving force that would lead to the biggest crypto rally ever by far, and now the crypto experts at Messari have run some calculations. They have found that if institutional investors on average put a mere 0.5% of their portfolio into Bitcoin, then Bitcoin would surge to USD 37,000, which is nearly double the all-time high of USD 20,000 in December 2017.
What would it look like if institutional investors followed Paul Tudor Jones and allocated a “low single-digit percentage” to #Bitcoin?
Here’s what we found using our best estimates of global inst. investor AUM.
TL;DR?
Hundreds of billions if not trillions $ in inflows
— Ryan Watkins (@RyanWatkins_) June 23, 2020
In order to perform these calculations, Messari first figured out approximately how much money institutional investors have, and then institutional investors were divided by category. As can be seen in the chart above, it was determined that Endowments & Foundations have USD 2 trillion of assets under management (AUM), Family Offices have USD 5.9 trillion AUM, Sovereign Wealth Funds have USD 8.2 trillion AUM, Pension Funds have USD 40.2 trillion AUM, and Mutual Funds have USD 48 trillion AUM.
Truly these numbers are astronomical, with a total of USD 104.3 trillion of assets held by institutional investors globally. To put this in perspective, this is equivalent to the collective wealth of the entire United States, and tens of trillions of USD more money than the collective wealth of all of the European nations combined.
Messari then calculates a theoretical scenario where 0.5%, 1%, 1.5%, 2%, and 2.5% of the portfolios of institutional investors is invested in Bitcoin. Notably, the firm accounts for the ‘fiat amplifier’, since flows into an asset do not correspond 1 to 1 to price increases for the asset. Basically, due to relatively little liquidity, the price of Bitcoin rises 2 times to 25 times more than theoretical calculations would indicate.
In other words, the spot market would likely run dry of supply if institutional investors were buying billions of USD of Bitcoin at a time, and this supply crunch results in rapidly rising prices.
Depending on your assumptions, an aggregate 1% institutional allocation to Bitcoin can easily bring Bitcoin’s marketcap above $1 trillion, or over $50,000 per BTC pic.twitter.com/8vogmvevWf
— Ryan Watkins (@RyanWatkins_) June 23, 2020
In the above Tweet is a chart showing how the market cap of Bitcoin would change using several different fiat amplifier values, and it can be seen that the fiat amplifier makes a huge difference.
Ultimately, Messari found that if institutional investors on average put 0.5% of their portfolio into Bitcoin, the Bitcoin market cap would rise by USD 521 billion, skyrocketing Bitcoin’s price to roughly USD 37,000.
It is quite promising that even a 0.5% average investment from global institutional investors could move the market to nearly double all-time highs. Further, this estimate is quite conservative since it uses the lowest possible fiat amplifier. If the fiat amplifier ends up being high in real-life, which is quite likely since USD 521 billion of institutional investment would cause Bitcoin’s market supply to become quite scarce, then Bitcoin could easily head to over USD 100,000.
Zooming out, these theoretical calculations show that not only would a relatively small percentage of the portfolios of global institutional investors be enough to ignite the biggest Bitcoin rally ever, but also that even a single institutional investor, or a big Bitcoin purchase in general, is probably enough to fuel a significant Bitcoin rally.
Basically, Bitcoin’s market cap is just over USD 0.17 trillion at this time, and this is very small relative to the gold market cap of USD 10 trillion, and the stock market cap which is many tens of trillions of USD. Therefore, Bitcoin is actually an extremely small market relative to other global markets, and literally even one big institutional investor could be enough to spark a record-breaking Bitcoin rally.
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