Bitcoin remains bid and consolidates below the $20,000 level. So far, every dip has been bought, and more institutional investors reveal stakes in Bitcoin.
On the one hand, MicroStrategy revealed that it has added to its long position by buying close to the recent highs. However, this is nothing new as the company has as part of its policy to invest a certain percentage of revenue in Bitcoin.
The latest institutional investor joining the crypto frenzy is MassMutual – a $235 billion insurance company. It just revealed a $100 million purchase of Bitcoin, and suddenly we do have an explanation for why the price of the cryptocurrency remains bid on every dip.
Long-Term Diversification Benefits
Insurance companies usually apply a long-term investment strategy for their general investment accounts. With over two-hundred billion dollars in assets, the current exposure to Bitcoin for MassMutual appears only designed to diversify the portfolio.
As we have seen lately, the two main assets considered as mandatory in a long-term portfolio (i.e., gold and Bitcoin) can diverge. While most of 2020 they moved in a positive correlation, the two diverged strongly since October. As such, gold corrected from the all-time highs to the current $1,820 while Bitcoin almost doubled in price since October, rising from $10,000 close to $20,000.
The problem with Bitcoin remains its relatively small market, which offers an answer for its high volatility. A long-term investment makes sense as you never know where Bitcoin might go. As one of the recent institutional investors put it, the world did not understand much of the Internet in the 90s, so it might be something similar to Bitcoin in the present.
Sure, if one pinpoints to Bitcoin’s performance in a specific period, then doubling your investment from the start of October 2020 to the end of November the same year is fantastic. As such, many holders (i.e., long-term investors from the retail community) are asking why do other traders/investors hesitate in joining the Bitcoin race?
The answer comes from volatility. While everyone talks about the positive performance, few mention the negative one. For instance, since the start of 2020, Bitcoin first lost about 60% of its value before bouncing.
Hence, if your investment strategy is not affected by such a discrepancy, then Bitcoin is the right asset for it. In other words, the only way institutional investors join the Bitcoin race is by investing a tiny fraction of their portfolios. Hodlers do just the opposite – at their own peril.