There are lots of reasons why individuals buy crypto, but governments and other institutions have their own reasons. In fact, almost 7% of all Bitcoin in circulation is held by governments and public institutions worldwide, and this number is only likely to grow as the use of crypto becomes more common. But what’s driving these huge investments?
Why do these institutions buy Bitcoin?
Governments tend to buy Bitcoin for a number of reasons, including hedging against macroeconomic trends like inflation, earning interest on their holdings, using Bitcoin for tax payments or payment transactions, and as a store of value.
To hedge against macroeconomic trends.
Most countries now face the threat of deflation, or a decline in the general price level of goods and services. With Bitcoin being seen as an alternative to traditional fiat currencies, many governments are hedging against this risk by buying up large amounts of crypto.
For example, they may purchase Bitcoin as a way to hedge against inflation in their own currency, helping to protect their purchasing power and maintain the stability of their economy.
Cryptocurrencies tend to fall when currencies like the dollar get stronger. This is due to the fact that investors typically move out of crypto and into more stable currencies when there is economic uncertainty.
To earn interest on their holdings.
Interest rates in many countries are very low right now, making it difficult for institutions to get a decent return on their investments. By buying Bitcoin, they can potentially earn much higher returns than they could with traditional fiat. While most governments won’t stake crypto on an exchange, buying and holding on to the right coins can earn them significant revenue.
Rather than keeping large amounts of cash or other traditional financial instruments in reserve, many governments and organizations are turning to crypto as a more secure and lucrative option for managing their money.
Taxation and Payments
Taxation is another major factor driving government investment in Bitcoin. By holding some of their funds in crypto, governments can easily track transactions and ensure that taxes are paid appropriately on any gains made from trading or investing in digital assets. This has become important as countries move towards taxation and regulation of crypto markets.
At the same time, many governments also use Bitcoin to make large payments or international transfers, as it is faster and more secure than traditional methods like a wire transfer. For example, El Salvador has adopted Bitcoin as a legal tender, recognizing it as a store of value and facilitating payments
How do these institutions get Bitcoin?
The majority of government funding comes from taxes, so it is natural that many governments buy Bitcoin as a way to pay their tax obligations. Many countries now accept Bitcoin payments for everything from income and capital gains taxes to corporate profits and value-added tax.
Bitcoin Seized from criminals
In addition to buying crypto through regular means, some governments also obtain Bitcoin by seizing it from criminals or traffickers. For example, law enforcement officials in the US have seized millions of dollars worth of crypto assets and can decide to sell them off at an auction, or simply keep these locked up.
Finally, some governments and organizations may simply choose to purchase Bitcoin directly from exchanges or other sellers. This can be a quick and easy way to obtain large amounts of crypto, though it is also the most expensive option. Regardless of how they get it, though, many institutions are now seeing great benefits in having a diverse cryptocurrency portfolio that includes Bitcoin and other top coins like Ethereum and Ripple.
However, retail traders usually have to purchase crypto via exchanges like Binance, brokers like eToro, or by trading with Bitcoin robots like Bitcode AI. These methods are typically more expensive and take longer but they are often the only way ordinary investors can access the crypto markets. As more governments and other institutions buy Bitcoin, we can expect to see continued growth in the use of these trading methods as well.
These institutions are realizing the many benefits
Cryptocurrencies have had it rough in 2022 but that is starting to change as governments and institutions around the world continue to buy Bitcoin for a variety of reasons. Whether it’s for hedging, earning interest, taxation and payments, or simply as a store of value, these institutions are realizing the many benefits that crypto has to offer.