In the past few months, institutional demand for Bitcoin (BTC) has increased significantly after several high profile investments. Asset manager and co-founder of 10T Holdings, Dan Tapiero believes this could lead to a problematic shortage of BTC over time.
Along with investments from Square, MicroStrategy, and Stone Ridge, bitcoin inflows to the Grayscale Bitcoin Trust have increased.
Due to the rapid growth of institutional investment, Tapiero warns that short sellers may have problems going forward.
Institutional investors are rushing to Bitcoin
In the third quarter of 2020, the Grayscale Bitcoin Trust recorded an inflow of $ 1.05 billion. That was the company’s first billion dollar quarter and it also highlights record high institutional demand. The company’s quarterly report reads:
“Grayscale had the largest quarterly inflows ever, over $ 1 billion in the third quarter of 20, making it the third record quarter in a row. Year-to-date investment in the Grayscale family of products has exceeded $ 2.4 billion, more than double the cumulative $ 1.2 billion inflow into products from 2013 to 2019. “
The timing of Grayscale’s record quarter is noteworthy as it is below $ 3,600 a few months after the BTC price fell.
Cumulative quarterly inflows into grayscale trusts, including bitcoin. Source: grayscale
Bitcoin fell $ 3,600 on March 13 after liquidating $ 1 billion in futures contracts. BTC has steadily rallied since then, eventually rising above $ 12,500 in early September.
Institutional demand for bitcoin rose rapidly, having now been dubbed one of the steepest declines for bitcoin in recent history.
Considering the steady rise in grayscale inflow from institutional investors, Tapiero said:
“Bitcoin short circuits possible. Barry’s Grayscale Trust is eating up BTC like there’s no tomorrow. When 77% of all newly dismantled vehicles become 110%, the lights go out. The supply of non-miners will come under pressure. Shorts will be dead. The prize can go to any number. “
The supply concerns coincide with the halving cycle
Speculations about a possible supply-side crisis for Bitcoin also coincide with the halving cycle. Bitcoin went through its third halving on May 11, and historically, halving over the next two years will result in longer bull runs.
The halving has been shown to have a direct impact on BTC price, especially over the long term, as the rate at which the remaining BTC supply is brought into the market is slowing down.
Bitcoin has a firm supply of 21 million and as with any halving, the number of BTC miners may decline. Hence, there is less BTC available in the market every four years.
In 2016, it took Bitcoin around 15 months to peak after the second halving. If a similar pattern follows, a year after the last halving would be around the third quarter of 2021.
Coincidentally, the current cycle after the halving is encountering unprecedented institutional demand.