
The Leading Alternative Investment
Generally, bitcoin is considered an asset driven by retail demand. In addition to the retail segment, institutional players have increasingly been entering the scene from 2020 onwards. While some of the companies like Grayscale were already founded in 2013, the larger scale inflow of institutions can be seen to have occurred during recent years.
In July 2020, Michael Saylor and his company MicroStrategy (MSTR) brought institutional bitcoin thesis to wider audiences. Saylor announced MicroStrategy to explore purchasing bitcoin, gold, and other alternative assets instead of holding cash (USD). Saylor’s public statements marked a turning point in the way institutions consider bitcoin and digital assets, leading to broader acceptance towards the asset class.
How to Define Bitcoin
As bitcoin combines multiple different attributes, it’s sometimes hard to define it as an asset. One suitable framework is dividing bitcoin into three categories: digital property, digital money, and digital energy.
[Digital Property]
Bitcoin can be described as a scarce digital property in the new digital world. Unlike traditional property investments, bitcoin doesn’t depreciate in use and consequently lose its value. Only 21 million units of this digital property will ever exist. Additionally, the cost of storing this digital property is non-existent.
[Digital Money]
Bitcoin is used as a form of money. It is a good asset for transactional purposes and enhanced by the Lightning Network (LN) adoption, optimal for microtransactions. Unlike fiat-derived currencies, bitcoin's supply is restricted to 21 million units, and its monetary base can’t be increased. Satoshi devised a new way to manufacture sound money with the proof-of-work consensus protocol (PoW). Fiat currency systems manufacture free and inflationary money. There is no actual cost for the traditional financial system to create more dollar, euro, or yuan currency units.
[Digital Energy]
During times of increasing energy prices and inflation, bitcoin can act as an energy battery. Native bitcoin units can be mined in distant locations with cost-effective and renewable energy sources. The units operate as a store of wealth and energy, ready for future use cases.
Institutional Bitcoin Thesis
Bitcoin’s institutional value proposition can be divided into three tranches: Defensive, opportunistic, and strategic.
[Defensive]
Bitcoin is an excellent hedge against inflation. Storing cash reserves in the corporate balance sheet is risky as fiat currency is losing its value in an escalating manner. Bitcoin offers companies a defensive hedge against unsustainable monetary policies.
[Opportunistic]
Bitcoin is a highly scarce asset class, and recent data shows only seven percent of bitcoin’s supply being liquid. Bitcoin’s built-in scarcity combined with illiquid supply creates a setting for a perfect storm, potentially leading to parabolic price advances. Even allocating a small percentage of corporate cash reserves to bitcoin creates a huge upside opportunity. In a bigger picture, bitcoin heavily disrupts the traditional finance industry, offering a valid decentralized alternative.
[Strategic]
Bitcoin allocation can be seen as a strategic investment, combining the company’s business moat with digital gold. As Michael Saylor mentioned, MicroStrategy’s software revenue grew at 0% per year until their bitcoin allocation. The bitcoin strategy was brilliant in a strategic sense but also enhanced MicroStrategy’s underlying software business.
Spot Bitcoin ETFs
The first US-based spot bitcoin ETFs began trading on January 11th 2024, following the SEC's approval of 11 such products. This marked a pivotal moment for bitcoin's integration into traditional financial systems, allowing investors to gain exposure to bitcoin's price without directly owning the cryptocurrency.
Since the launch, balances across US spot bitcoin ETFs have hit an all-time high of 921,000 BTC, worth around $54 billion as of late August 2024. This suggests growing investor demand for these products.
Recently, the US spot bitcoin ETFs saw positive inflows of around $1 billion last week, coinciding with bitcoin's price dropping below $54,000. This indicates investors are using these ETFs to gain exposure during price dips.

Sources: CryptoQuant, Maartunn
Spot bitcoin ETFs operate within a regulated framework, with oversight from financial authorities. This provides investor protection and helps mitigate risks like fraud and market manipulation.
Spot bitcoin ETFs allow investors to gain exposure to the asset through traditional brokerage accounts, reducing the complexity of directly purchasing and storing the cryptocurrency.
In the short-term, spot bitcoin ETFs could increase the underlying asset's demand. However, the long-term price impact is still uncertain. Overall, spot bitcoin ETFs have become a mainstream investment vehicle for accessing the cryptocurrency market. Their growing balances and inflows suggest increasing adoption, though their long-term effects on bitcoin's price remain to be seen.

Sources: Dune, hildobby
The introduction of spot bitcoin ETFs has been viewed as asset class' validation of legitimacy in the financial markets. These ETFs contribute to bitcoin's liquidity by potentially attracting more buyers and sellers, which could lead to increased price stability or volatility, depending on market dynamics.
The market sentiment leans towards optimism, with expectations that these ETFs will lead to a "sell-side liquidity crisis" due to the significant amount of bitcoin being locked into these funds, potentially driving up bitcoin's price due to reduced supply available for sale. The ETF-based locked units increase "illiquid supply".
Bitcoin’s illiquid supply refers to a significant portion of the existing units being locked up for the long term and being available in limited quantities or not at all for active trading. Illiquid supply impacts the price of bitcoin, as limited availability increases demand and usually drives up the price. Illiquid supply can also cause a situation called "supply shock".
MicroStrategy
Profiled as the de facto Bitcoin institution, MicroStrategy (MSTR) recently announced plans to increase its bitcoin acquisition rate by selling up to $2 billion worth of its shares. The company filed with the SEC to sell these shares, with the proceeds to be used to buy more bitcoin units.
These news come after MicroStrategy's bitcoin balance sheet reached 226,500 units, making it one of the world's largest holders of the asset. However, the company has made it clear they are not done buying, with this new strategy aiming to accelerate their bitcoin purchases.

Sources: CryptoQuant, Maartunn
MicroStrategy employs a dollar-cost averaging (DCA) strategy in its purchases, but has a tendency to cyclically weight its buying program. When spot prices sharply declined back in 2022, the company's purchases were modest at 8109 bitcoins, while in 2023, acquisitions rose to 56,650 units.
On an annual basis, the growth of MSTR's buying program from 2022 to 2023 was an impressive 599 percent. This year's purchases have climbed to 37,181 units, and MicroStrategy is on track to reach or exceed last year's numbers. The recent purchases, coinciding with a weakening spot price, can be considered as counter-cyclical. In 2024, MSTR has so far accumulated a total of 37,350 coins.
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MicroStrategy's Purchase Program Summary (BTC)
2022: 8109
2023: 56,650 (yearly increase 48,541 or 599%)
2024: 37,350
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Source: CryptoQuant, Maartunn
State-Level Adoption
State-level adoption of bitcoin has been a hot topic this year, especially when we approach the US election of November. Last month's anticipated Bitcoin 2024 conference shed some light on each candidate's current stance on digital assets.
In the Bitcoin 2024, Robert F. Kennedy Jr. (RFK) took a bold approach: If elected, he promised to buy 550 bitcoin units daily until US reaches a reserve of four million bitcoin units. Kennedy's hypothetical reserve of four million would represent 20.27% of all bitcoin's in circulation.
Additionally, RFK proposed that the Internal Revenue Service (IRS) should issue guidance stating that transactions between bitcoin and the U. dollar would be unreportable and non-taxable.
Speaking after Kennedy, Donald John Trump's views largely correlated with the former, however Trump seemed to take a bit more moderate approach, announcing that he aims to build a 200,000 bitcoin unit strategic reserve. Trump also promised to make United States the "crypto capital of the planet", and declared that the US would become a "bitcoin mining powerhouse".
The stance of Trump's and Kennedy's rival Kamala Harris seems to remain neutral. However, Harris has strong ties with the traditional tech industry, having served as California’s Attorney General and developed relationships with influential figures in Silicon Valley. Recently Kamala Harris’ advisers reportedly reached out to crypto industry with "pro-business, responsible business" message.
[Presidential Candidate Profiles]
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Democrats:
Kamala Devi Harris (neutral).
Stance: Not defined, seeks a "reset" with crypto companies, possibly pro-business.
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Republicans:
Donald John Trump (positive).
Stance: Aims to build a 200K unit bitcoin strategic reserve. Promised to make the United States the "crypto capital of the planet". Declared that the U.S. would become a "bitcoin mining powerhouse".
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Independent and third-party:
Robert F. Kennedy Jr. (positive).
Stance: Aims to build a 4M unit bitcoin strategic reserve. Proposed that the Internal Revenue Service (IRS) should issue guidance stating that transactions between Bitcoin and the U.S. dollar would be unreportable and non-taxable.
Articulated a vision of Bitcoin not just as a currency but as a cyber defense mechanism capable of protecting online identities and data from cyber attacks.
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From a broader vantage point, designating bitcoin as a reserve asset would likely enhance its status as "digital gold," attracting institutional and retail investors alike. This paradigm shift could lead to a more stable and robust market, potentially driving the price higher over the long term as more investors view bitcoin as a viable asset class.
Incorporating bitcoin into the United States Department of the Treasury holdings could diversify the nation's asset portfolio, reducing reliance on traditional investments like gold and foreign currencies. This diversification may appeal to investors looking for inflation hedges, further supporting bitcoin's price.
A move to make bitcoin a strategic reserve asset could prompt more favorable regulatory frameworks for cryptocurrencies in the US. This shift might accelerate mainstream adoption and investment in digital assets, positively influencing prices across the market.
Looking Forward
In a bigger picture, it's easy to see bitcoin's institutional adoption to grow within the next twelve months. The contemporary combination of regulatory advancements, relative market stability, increasing institutional interest, and global usage are supporting the adoption momentum. The market environment could lead to a more entrenched position for bitcoin in the financial landscape, attracting further investments and fostering broader acceptance, ceteris paribus.