Imagine an institutional investor like an insurance company or pension fund decides that it wants to test the cryptocurrency waters. Or maybe a large corporation is looking to buy some Bitcoin 

BTC

$20,745

 to diversify its treasury holdings. One thing they’re unlikely to do is announce their intention beforehand.That could drive up the price of the digital asset they are trying to buy.

Thus, there’s often a lag between a large institution’s action — purchasing $100 million in Bitcoin, say — and its public announcement of such. “Institutional participation flows in cycles,” Diogo Mónica, co-founder and president of crypto custody bank Anchorage Digital, told Cointelegraph. “By the time you’re hearing about a new company adding crypto, we’ve typically been talking to them for many months.”

Has something like that been going on in the recent price run-up — when Bitcoin, Ether 

ETH

$1,529

 and many other cryptocurrencies reached all-time highs? Were corporations and institutional investors stealthily gobbling up crypto through the early fall — so as not to raise the price while they were in accumulation phase — with its impact only this week being made manifest?

Wherefore the largest investors?

Kapil Rathi, CEO and co-founder of institutional cryptocurrency exchange CrossTower, told Cointelegraph, “Institutions have definitely been initiating or increasing Bitcoin allocations recently.” Much of it might have begun in early October, he allowed, as large investors were probably trying to get in ahead of the ProShares exchange-traded fund (ETF) launch — and it then became a seller after the launch — but still, “there has been strong passive support that has kept prices stable. This buying support has looked much more like institutional accumulation than retail buying in the way it has been executed.”

James Butterfill, investment strategist at digital asset investing platform CoinShares, cautioned that his firm’s data is only anecdotal — “as we can only rely on institutional investors telling us if they have purchased our ETPs” — but “we are seeing an increasing number of investment funds get in contact to discuss potentially adding Bitcoin and other crypto assets to their portfolios,” he told Cointelegraph, further explaining:

“Two years ago, the same funds thought Bitcoin was a crazy idea; a year ago, they wanted to discuss it further; and today, they are becoming increasingly anxious that they will lose clients if they do not invest.”

The key investment rationale, Butterfill added, “seems to be diversification and a monetary policy/inflation hedge.”

This participation may not necessarily be from the most traditional of institutional investors — i.e., pension funds or insurance companies — but skewed more toward family offices and funds of funds, according to Lennard Neo, head of research at Stack Funds, “but we do see an increase in risk appetite and interest, particularly so for specific crypto sectors — NFTs, DeFi, etc. — and broader mandates outside of just Bitcoin.” Stack Funds is getting two to three times more requests from investors than what it was getting early in the third quarter, he told Cointelegraph.

Why now?

Why the apparent heightened institutional interest? There are myriad reasons ranging from “the speculative to those who want to hedge against global macro uncertainties,” said Neo. But several have recently declared that they viewed “blockchain and crypto becoming an integral part of a global digital economy.”

Freddy Zwanzger, co-founder and chief data officer of blockchain data platform Anyblock Analytics GmbH, saw a certain amount of fear of missing out, or FOMO, at play here, telling Cointelegraph, “Where in the past, crypto investments were a risk for managers — it could go wrong — now it increasingly becomes a risk not to allocate at least some portion of the portfolio into crypto, as stakeholders will have examples from other institutions that did allocate and benefited greatly.”

The fact that large financial companies like Mastercard and Visa are beginning to support crypto on their networks and even purchasing nonfungible tokens has only intensified the FOMO, Zwanzger suggested.

“Interest from institutional investors and family offices has been rising gradually throughout the year,” Vladimir Vishnevskiy, director and co-founder at St. Gotthard Fund Management AG, told Cointelegraph. “The approval of the BTC ETF in October only exacerbated this trend, as now there is a much easier path to gaining this exposure.” Inflation worries are high on the agenda of many institutional investors, “and crypto is seen as a good hedge for this along with gold.”

Public companies looking at crypto for their balance sheets

What about corporations? Have more been purchasing Bitcoin and other cryptocurrencies for their corporate treasuries?

Brandon Arvanaghi, CEO of Meow — a firm that enables corporate treasury participation in crypto markets — told Cointelegraph that he is seeing a new receptivity on the part of corporate chief financial officers vis-a-vis crypto, particularly in the wake of the global pandemic:

“When inflation is at 2% and interest rates are reasonable, corporate treasurers don’t think about looking into alternative assets. [...] COVID flipped the world on its head, and inflationary pressures are making corporate treasurers not only open to but actively seek alternative yield sources.”

“From our vantage point, we’re seeing more companies buy crypto to diversify their corporate treasuries,” commented Mónica. In addition, “Banks are reaching out to us to meet the demand for these types of services, which indicates a bigger trend beyond just companies adding crypto to their balance sheet. [...] It means soon, more people will have direct access to crypto through the financial instruments they already use.”

Macro trends are encouraging companies to add crypto to their balance sheets, Marc Fleury, CEO and co-founder of fintech firm Two Prime, told Cointelegraph. “Consider the fact that liquid corporate cash for U.S. publicly traded companies has soared from $1 trillion in 2020 to $4 trillion in 2021, and you can see why many are looking for new places to deploy this extra cash and why this trend will not abate.”

Meanwhile, the number of publicly traded companies that have announced they are holding Bitcoin has risen from 14 this time last year to 39 today, with the total amount held at $13.7 billion, said Butterfill.

Speaking of corporations, are more companies ready to accept crypto as payment for their products and services? Recently, Tesla was rumored to be on the verge of accepting BTC as payment for its cars (again).

Mónica told Cointelegraph, “Fintechs are reaching out to us to help them support not only Bitcoin, but a variety of digital assets, suggesting in the broader scheme, large companies are becoming more willing to support crypto payments.”

Fleury, for his part, was doubtful that cryptocurrencies — with one notable exception, stablecoins — would ever be widely used as a medium of exchange. “Volatile cryptos, like BTC and ETH are not good for payments. Period,” said Fleury. What makes crypto great as a reserve currency makes them poor monies of exchange, almost by design, he said, adding, “Stablecoins are another story.”

Is the stock-to-flow model persuasive?

Much has been made in the crypto community about the so-called stock-to-flow (S2F) model for predicting Bitcoin prices. Indeed, anonymous institutional investor PlanB’s S2F model predicted a BTC price of >$98,000 by the end of November. Do institutional investors take the stock-to-flow model seriously?

“Many institutional investors ask us this question,” Butterfill recounted, “but when they look more deeply into the model, they do not find it to be credible.” Stock-to-flow models often extrapolate future data points beyond a regression set’s current data range — a dubious practice, statistically speaking.

Furthermore, the method that compares an asset’s existing supply (“stock”) with the amount of new supply entering the market (“flow”) — through mining, for instance — “certainly hasn’t worked for other fixed-supply assets such as gold,” said Butterfill, adding, “In more recent years other approaches have been made to enhance the S2F model, but it is losing credibility with clients.”

“I don’t think institutions pay too much heed to the stock-to-flow model,” agreed Rathi, “though it is hard to malign it, as it has thus far proven to be quite accurate.” It seems to be more popular with retail traders than with institutions, he said. Vishnevskiy, on the other hand, wasn’t ready to dismiss stock-to-flow analysis so fast:

“Our fund looks at this model along with 40+ other metrics. It’s a good model, but not to be used alone. You have to use it along with other models and also consider the fundamentals and technical indicators.”

If not institutions, who is driving up prices?

Given that institutional participation in the latest crypto run-up appears to be mostly anecdotal at this point, it’s worth asking: If corporations and institutional investors haven’t been devouring most of the cryptocurrency floating about, who is?

“It makes sense that this has been a retail-led phenomenon,” answered Butterfill, “as we have witnessed the birth of a new asset class, and along with that comes confusion and hesitancy from regulators.” This regulatory uncertainty remains a continuing damper on institutional participation, he suggested, adding:

“In our most recent survey, regulations and corporate restrictions were the most-cited reason for not investing. The survey also found that those institutions with much more flexible mandates, such as family offices, have much larger positions compared to wealth managers.”

Still, even if ironclad data confirmation is lacking, many believe institutional participation in the digital asset market is growing. “As crypto security, technical infrastructure and regulatory clarity have improved over the years, it’s opened the door for broader institutional participation in the sector,” Mónica told Cointelegraph, adding:

“In the coming years, we’re going to see many payment rails through crypto, including stable coins and DeFi. I also expect we’ll see more interconnectivity between blockchain-based payment rails with legacy ones.”

For Fleury, the trend is clear. “Pension funds, endowments, sovereign funds and the like will adopt crypto in their portfolio in the next cycle.” They are cautious investors, however, and it takes time to conduct the necessary due diligence.

Related: Crypto and pension funds: Like oil and water, or maybe not?

But once institutional investors do commit, they tend to scale their commitments rapidly, he added. “We are still in the early innings of this institutional cycle. We will see a lot more interest from pension funds.”

At that point, a single $1-billion crypto transaction — like the one that occurred in late October, setting a record — will be an “everyday occurrence,” said Fleury.