In the annual study Big Ideas 2021 , published by Ark Invest this Thursday, January 28, the firm analyzes 12 emerging technologies, including Bitcoin, from the perspective of their potential to market and the long-term impact of the innovations present in these technologies, which he qualifies as «disruptive».
Among the conclusions about Bitcoin, Ark maintains in the study that the inclusion of 1% of bitcoin in the balance sheets of the companies that make up the S&P 500 index, so that the price of the first cryptocurrency increases by USD 40,000. « We believe that Bitcoin deserves a strategic inclusion in institutional portfolios, ”says Ark Invest.
The authors of the study affirm that, when registering the milestone of a new historical high in the price of bitcoin recently at the beginning of January, the fundamental parameters of its network remain healthy. In the following graph, Ark identifies the main milestones of institutional investment in bitcoin during 2020, on which CriptoNoticias highlighted the acceleration of that trend. Also, CriptoNoticias made a compilation of companies investing in bitcoin, which accumulated in October more than 600,000 BTC and that closed 2020 with more than USD 20,000 million invested.
Main milestones of the bitcoin price rally during 2020. Source: Ark Invest. Translation: CriptoNoticias.
By examining the different segments of BTC holders (HODLers) and classifying them by holding period, Ark Invest found, that 60% of the BTC have not moved more than one year. The segment of BTC that has not moved in more than five years, those with “strong hands”, as analyst Willy Woo calls them, has been growing and covers more than 20% of the total, as can be seen in the following graph.
BTC holders for more than one year account for 60% of active BTC. Source: Ark Invest.
On the other hand, the different categories of investors and the market in general are maturing, says Ark Invest. The effective capitalization of Bitcoin, which is measured by the cost of BTC when they change hands , has reached an all-time high, the study notes. Higher effective capitalization suggests early holders are profiting, while new investors are setting positions to create higher levels of price support , study says .
The historical ceiling of the effective capitalization of Bitcoin exceeds $ 100 billion. Source: Ark Invest.
The institutional factor in the price of bitcoin
In 2020, investment in bitcoin by public companies for the first time integrate it into the organizations’ treasury reserve. There were already bitcoin funds such as Grayscale’s, offering exposure to that cryptocurrency through regulated financial instruments, but MicroStrategy and Square were the first companies to use bitcoin for their respective corporate strategic reserves , replacing the reserve in dollars, as reported by CriptoNoticias last August.
In this regard, Ark Invest points out that this initiative could be extended to other organizations.
Square and MicroStrategy, both with bitcoin investments in their corporate balance sheet, they are showing the way for public companies to implement bitcoin as an alternative to cash.
Ark Invest.
According to Ark Invest research, if all S&P 500 companies will allocate 1% of their cash to bitcoin, its price could increase by approximately $ 40,000 , while, if that percentage were taken to 10%, the price increase would exceed USD 400,000.
Hypothetical price of bitcoin calculated according to the percentage of BTC invested in companies S&P 500. Source: Ark Invest.
Inclusion of bitcoin in investment portfolios
ARK assures that the rapid growth of Bitcoin has positioned it for an allocation in investment portfolios
We believe that bitcoin offers one of the most attractive risk reward profiles among exi assets stents. As our analysis suggests, it could escalate from roughly $ 500 billion to $ 1–5 billion over the next 15 to 10 years. In our opinion, capital allocators should consider the opportunity cost of ignoring bitcoin as part of a new asset class.
Ark Invest.
Among the reasons to include bitcoin in a traditional investment portfolio, Ark Invest cites its historical low correlation with traditional assets over the last decade. For example, bitcoin has a correlation of -0.14 with bonds, 0, 15 with Tesla, 0.17 with Apple, and 0.24 with gold.
Another reason is in Ark Invest’s estimates of the daily trading volume of bitcoin, which places it at around USD 6 billion. Ark maintains that this volume is comparable to that of a large corporation. «This could exceed the volume of the US stock market in less than four years and the volume of the global spot currency market in less than six years “, says the study.
The following graph shows the effect on the price of BTC of an inclusion of 1 %, 2.55% and 6.55% of bitcoin in various segments of institutional portfolios.
With different percentages of inclusion of bitcoin in institutional portfolios, its price could vary between USD 100,000 and USD 500,000. Source: Ark Invest.
As can be seen in the graph, the inclusion of 1% of bitcoin would bring the price of BTC to around USD 100,000, while 2.55% would double the price hypothetical reached. In the case of the inclusion of a 6.55% percentage of bitcoin, the price could reach USD 500,000, according to the calculations of Ark Invest.
Ark Invest made a great number of simulations, using historical market data, with various percentages of inclusion of bitcoin in institutional portfolios. Part of this methodology is seen in this article from CriptoNoticias, in which Ark tests with different percentages of bitcoin in a million different scenarios.
According to the aspects analyzed by Ark Invest, the levels of institutional investment in Bitcoin could grow significantly this year. The institutional contribution in 2020 exceeded USD 20,000 million, according to the analysis carried out by CriptoNoticias last December.
