The world’s largest cryptocurrency, Bitcoin, has doubled since the beginning of the year as retail investors supply it with cash, while Tesla has invested $1.5 billion in it and Microstrategy has made many purchases.


Analysts at JPMorgan Chase & Co. estimated that cash flow from institutional portfolios in Bitcoin increased by 20% in dollar terms this quarter compared to the previous period, while retail placements increased by 90%. And that development could change the price of Bitcoin more than it would affect other assets, according to Bank of America analysts including Francisco Blanch and Savita Subramanian.


Bitcoin is extremely sensitive to the growing demand for the dollar,” said BofA analysts. “We estimate that a net inflow of $93 million into Bitcoin would result in a 1% appreciation of its price, while achieving the same rate of rise in gold would require about $2 billion, or 20 times more capital. By contrast, the same analysis for 20-year bonds shows that multibillion-dollar cash flows do not have a significant effect on their price, pointing to the much larger and more stable nature of US bond markets.


Cryptocurrencies are gaining credibility as an asset category as a strong market for products and derivatives develops into which the institutions enter and its prices reflect it accordingly.


Bitcoin is considered by some as an attractive digital alternative to gold or as a potential refuge from inflation due to its limited supply. However, some see a speculative bubble and worry about issues such as the large use of energy to mine digital currency and its real value.


BofA notes that since about 95% of all Bitcoin is owned by 2.4% of investors with the largest accounts, it is “impossible to use as a payment mechanism or even as an investment vehicle“.


It is also pointed out that some of the changes in its price – which remains unstable – and its limited liquidity, may simply depend on market conditions at the time.


While much of the Bitcoin price movement is attributed to the psychology of speculation, the large and rapid fluctuations up or down can be explained by the lack of two-way liquidity at that particular time,” said Jeffrey Halley, Asia-Pacific market leader in Oanda.


Another factor that is likely to increase the price is that the largest holders of digital currency are holding their Bitcoin, according to BofA, which also noted that many powerful holders calling themselves “whales” or institutional investors are actually buying Bitcoin instead of they sell it. “Looking at the detailed blockchain records, we find that the major addresses have not sold out in total since the pandemic began,” they said.