Institutional Investors May Enter Bitcoin With Peter Thiel’s Lead
For many years, billionaire investor Peter Thiel has expressed his enthusiasm towards Bitcoin and revealed his large investment in the dominant cryptocurrency. This week, according to the WSJ, Thiel’s venture capital firm has started to assist large-scale institutional investors and retail traders enter the cryptocurrency market.
Founders Fund, which has been acquiring bitcoin since 2012, has already seen hundreds of millions of dollars in profits from their early investment in the cryptocurrency market. In January, Bloomberg reported that the investment of Founders Fund in bitcoin is set to be around $20 million. In comparison to its $1.3 billion investment in technology startups, its investment in bitcoin could be described as a cautious move into a highly volatile market.
But, Thiel-led Founders Fund invested the majority of its $20 million in bitcoin, when it was valued at $2,000. By December 2017, Founders Fund had already generated $180 million in profits from a $20 million investment. As of May 2, 2018, the price of bitcoin remains just below $9,000 and the profit of Founders Fund generated by its bitcoin investment remains at around $60 million.
Despite having seen a sudden drop in the price of bitcoin and a 70 percent correction in February, Thiel and the rest of the Founders Fund are still comfortable with the market and are trying to lead investors in the traditional finance market into the cryptocurrency market.
Recently, it was disclosed that Founders Fund is an early investor in Tagomi Systems, a company that aims to become a broker-dealer in the bitcoin market to directly deal with high net worth individuals and retail investors.
Essentially, the team behind Tagomi is planning to ease the process of purchasing large batches of bitcoin through smart order routers. For instance, if a large-scale institutional investor or a wealthy family request a purchase of 50,000 bitcoins, Tagomi would spread the order of 50,000 bitcoins through multiple cryptocurrency exchanges and over-the-counter (OTC) markets to ensure there is sufficient liquidity and supply to acquire a large sum of bitcoin.
Currently, institutional investors have limited ways to purchase large batches of bitcoin. Several investors rely on the over-the-counter market and directly deal with miners, purchasing bitcoin from mining center operators. Some try to purchase bitcoin on exchanges, but it is not possible to purchase hundreds of millions of dollars worth of bitcoin on exchanges, as it would require bank deposits into an exchange and a complicated process of being approved by the exchange for Know Your Customer (KYC) and Anti-Money Laundering (AML) purposes.
So far, the demand from institutional investors for cryptocurrencies like bitcoin and Ethereum has been strong but the majority of the investors are yet to invest in the cryptocurrency market, possibly due to the lack of liquidity and volume in the market.
During an interview with CNBC, Thiel expressed his optimism towards bitcoin and it evolving into a safe haven asset for large-scale investors.
“I would be long bitcoin, and neutral to skeptical of just about everything else at this point with a few possible exceptions. There will be one online equivalent to gold, and the one you’d bet on would be the biggest. I’m not talking about a new payments system. It’s like bars of gold in a vault that never move, and it’s a sort of hedge of sorts against the whole world going falling apart,”