The increasing enthusiasm for bitcoin is largely being driven by institutional investors as the following GrayScale report screenshot shows:
As of this writing, GrayScale now holds approximately 56, 000 bitcoins, which is 2.7% of the total bitcoin supply, out of which:
5% is is owned by BlockFi
6.26% is owned by Three Arrows Capital
The two firms alone own $750 million worth of crypto under GrayScale.
It is important to note that GrayScale’s Bitcoin Trust holds 70% of all publicly traded bitcoin instruments in the United States, which means its by far the largest and the main avenue allowing institutional investors to gain indirect exposure to the asset class under a fully regulated and registered entity under the US Securities and Exchange Comission.
The fact that Bitcoin ETFs are not legal in the USA means you cannot invest in a fund that directly tracks the price of bitcoin. Instead, you have to invest in something like a GrayScale Bitcoin Trust, which means you’re buying shares in a trust.
The US SEC has denied Bitcoin ETF applications severally claiming that bitcoin prices can be manipulated. This makes Bitcoin trusts the next best thing to getting access to bitcoin as an institution.
The CEO of Digital Currency Group, the company which owns GrayScale, even contended that the firm is now the fastest growing asset manager of all time:
There is, however, a flip side to all of this.
Higher network activity leads to network congestion, and in turn higher fees per transaction. This is not unique to the bitcoin network as this has similarly happened with ETH and DeFi.
This is seen during the recent bitcoin bull run as show below:
December 13, 2020 – Bitcoin price was at $18, 773 with transaction fees at $2.7 with a daily trading volume of $23 billion – a 344% increase in less than one week
December 19, 2020 – Bitcoin price was at $23, 642 wtih transaction fees at $12 with a daily trading volume of $65 billion
A few anomalies have seen bitcoin fees hit $8 and even $13 per transaction. In 2017, transaction fees peaked at a staggering $55
The bitcoin network today however is very different from what it was in 2017. There are now far more miners available today to process and secure the transaction than there were 3 years ago.