Looking to Lock In Profits By Dec. 31? Institutions Already Did

Institutional investors may have already locked in gains for the year, but analysts are bullish that 2022 will bring more lucrative returns


Blockworks exclusive art by Axel Rangel


key takeaways

  • Bitcoin is on track to end 2021 more than 60% higher, despite its recent sell-off
  • Institutional investors sold a large portion of digital assets earlier in December, analysts say

As we head into the final days of 2021, investors are weighing portfolio rebalancing, but institutions have likely already made their last cryptocurrency trades of the year.

In early December, bitcoin lost as much as 25% in just over 24 hours. Based on the sell-off, it is likely that institutional investors may have sold high volumes of cryptocurrencies and secured profits before Dec. 31, analysts say. 

“I think it’s kind of expected,” said Daniel Matuszewski, co-founder of CMS Holdings. “There are a lot of funds that have a ton of money, there’s definitely some LPs that are pulling money off the table for those funds, and there are definitely people selling to lock-in carry, too.”

Institutional investor interest in digital assets, namely bitcoin, picked up in 2020 and continued into this year. There are several reasons large investors may be selling toward the end of the year, Michael Bucella, general partner at BlockTower Capital, said, including tax purposes. 

“A lot of people that came into the space in the last two years may be selling down to basically have liquidity to pay a larger tax bill, or they’re seeing that crypto is all of a sudden 20% of their portfolio and they are not comfortable with that level,” Bucella said. “I think there’s a lot more institutions going from zero to one or from one to two in terms of allocation than there are people that are rebalancing, so I think the actual effect of that, once you account for inflows next year, will be diminished.” 

Institutions are not making any more big moves before the end of the year, Matuszewski said. Their final trades were likely locked in around the middle of December. Bitcoin is up more than 66% year-to-date as of 12pm EDT Tuesday. 

Equities have a strong year

It was a strong year for equities, too. The Nasdaq, Dow Jones Industrial Average and S&P 500 are all on track to end 2021 more than 20% higher. 

The January following a double-digit return year for the S&P 500 is difficult to predict, however. Since 1980, there have been 16 years where the S&P 500 has ended the year more than 20% higher. Half of those instances saw a positive return for January and half saw a lower — the worst being -6.9% and the highest being 6.1%. 

“The S&P could very well end the year up over 30% on a total return basis, which has only happened 8 times since 1980,” wrote Jessica Rabe, co-founder of DataTrek Research in a recent note. “After an unusually large total annual return for the S&P (+30%), the index typically starts to give back some of those gains during the first month of the new year.”

The cryptocurrency correlation

A January sell-off in equities could drag cryptocurrencies lower, too, analysts say. 

“Historically, the correlation between bitcoin and stocks ebbs and flows,” Nicholas Colas, co-founder of DataTrek Research said. “If stocks are down in January though, it’s going to be hard for bitcoin to rally.” 

In the long term, bitcoin is likely going to overcome any sell-off seen early in the year, Colas predicted. The largest digital currency could see another lucrative year for returns, especially if institutional adoption continues at its current pace. 

“It’s important to note though that bitcoin’s volatility has been constant regardless of its price,” Colas said. “I don’t see that changing.” 

Bitcoin is up more than 66% year-to-date as of 3:00 pm ET on Dec 29, 2021.

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