Bitcoin Interest Surges Among Institutions and Sovereign Entities
As the adoption of Bitcoin continues to grow among institutions and sovereign entities, VanEck has reported a surge in interest in the leading cryptocurrency. Despite a recent slump in on-chain activity, Bitcoin adoption is moving at a faster pace compared to last year, driven by various key factors.
Institutional Adoption and Sovereign Involvement
According to a report released by VanEck on September 19, interest in Bitcoin has significantly increased over the past 12 months. This surge in interest can be attributed to the growing adoption of Bitcoin by institutions through exchange-traded products (ETPs) and the involvement of sovereign nations in Bitcoin mining and global transactions.
The report also highlighted that Bitcoin’s correlation with the NASDAQ and equities has been fluctuating, but its inverse correlation with the US dollar remains consistent. VanEck suggested that Bitcoin may soon break out of its current pattern, with potential catalysts including the upcoming debt ceiling deadline and the US Presidential Election.
Shift from NFT Speculation to Value Storage
Last year, the Inscriptions protocol drove network adoption of Bitcoin. However, USD-denominated on-chain Bitcoin transfer volumes have seen a significant increase of 202% year-over-year, despite a decline in daily inscription transactions by 93% and on-chain retail activity. This indicates that Bitcoin is gaining adoption with larger transaction sizes, even as the popularity of Inscriptions, primarily associated with inscribing non-fungible tokens (NFTs) called Ordinals, has waned.
The report emphasized that Bitcoin’s price appreciation this year can be better explained by its growing adoption as a vehicle for storing and transferring value, rather than speculation on NFTs. Additionally, Bitcoin trading volumes have surged by 173% year-over-year, outpacing equity trading volumes, which only rose by about 18%.
Institutional Players Enter the Market
VanEck attributed Bitcoin’s resilience as an alternative reserve to the influx of institutional investors and the participation of sovereign nations in Bitcoin mining operations. The sophistication of products tailored for institutions, such as custody solutions and ETPs, has played a significant role in driving institutional interest in Bitcoin.
The launch of spot Bitcoin exchange-traded funds (ETFs) in the US earlier this year has further fueled institutional interest, with $17.6 billion in inflows since January 11, according to Farside Investors data. Bloomberg senior ETF analyst Eric Balchunas commended the presence of institutions among Bitcoin ETF shareholders, noting that over 1,000 institutional investors disclosed investments in these funds during two 13F periods.
VanEck analysts pointed out that hedge fund holdings of Bitcoin ETPs increased by 38% in the second quarter, while registered investment advisors’ holdings only rose by 4%. National brokerage adoption of Bitcoin ETPs has been lagging, attributed to outdated macro model portfolios that do not yet consider Bitcoin as an allocation.
Sovereign Adoption and De-dollarization Efforts
The report also highlighted a “growing trend” of countries adopting Bitcoin for monetary and trade purposes, shifting the dynamics of both Bitcoin’s on-chain fundamentals and off-chain markets. Seven nations are now mining Bitcoin with direct government support, with Ethiopia, Kenya, and Argentina being the latest entrants in the industry.
This trend is seen as a part of global de-dollarization efforts, potentially strengthening Bitcoin’s role as a global reserve asset. Russia’s pilot of cross-border trade denominated in cryptocurrency was also mentioned in the report, raising questions about which nations might follow suit once the war inevitably ends.
Censorship Resistance Driving Adoption
VanEck analysts identified the need for censorship resistance as a third factor driving Bitcoin adoption. Efforts to regulate online speech, including bills in Australia and Brazil aimed at controlling social media activities, have raised concerns about centralized internet platforms’ influence on access to independent information.
The report referenced Brazil’s recent ban on X (formerly Twitter) due to the company’s failure to meet transparency requirements. Analysts argued that the “ideological and political capture” of centralized internet platforms poses a threat to individuals’ access to credible and independent information.
Bitcoin’s non-sovereign and censorship-resistant nature could attract users seeking a network focused on free speech. As Bitcoin continues to gain traction among institutions and sovereign entities, its role as a valuable asset for storing and transferring value is becoming increasingly prominent in the global financial landscape.