- \n
- The current bitcoin rally visually resembles the 2017 episode, but differs markedly in the context of fundamental factors.<\/li>\n
- Institutional interest in the first cryptocurrency is growing, as shown by investment volumes, the emergence of new large market participants, and activity on regulated exchanges.<\/li>\n
- Bitcoin rhetoric has markedly improved \u2014 more opinion leaders describe bitcoin as a store of value and a savings vehicle.<\/li>\n<\/ul>\n<\/div>\n
In Spite of Google Trends<\/h2>\n
From the start of the year, digital gold has risen 158% \u2014 from just above $7,000 to $18,550 (as of November 22). Over the same period gold prices rose by 23%<\/a>, and the S&P 500 index quotes by 10%<\/a>.<\/p>\n
\n![\"Why](\"https:\/\/u1f987.com\/wp-content\/uploads\/Messari-BTC-vs-SP-vs-Gold.png\")
Bitcoin growth dynamics (candlestick chart), gold (yellow line) and S&P 500 (purple line) since the start of the year. Data from Messari<\/a> as of November 22.<\/figcaption><\/figure>\n<\/div>\n At the time of writing, bitcoin was only 6.85% below its all-time high of $20,089 recorded nearly three years ago.<\/p>\n
\n![\"Why](\"https:\/\/u1f987.com\/wp-content\/uploads\/2-Messari.png\")
Data: Messari.<\/figcaption><\/figure>\n<\/div>\n The price trajectory of bitcoin\u2019s movement closely resembles the 2017 rally, when a large portion of the community was obsessed with the \u201cICO fever.\u201d Back then the market infrastructure was not ready for institutional money, and JPMorgan Chase chief Jamie Dimon called bitcoin a \u201cfraud\u201d and threatened to fire \u201cstupid crypto traders.\u201d<\/p>\n
\n![\"Why](\"https:\/\/u1f987.com\/wp-content\/uploads\/3-Google-Trends-vs-TSena.png\")
<\/figure>\n<\/div>\nThe price of any asset rises when demand exceeds supply. The chart above is evidence that the current rally is driven not only by ordinary users.<\/p>\n
The Halving: A Growth Driver<\/h2>\n
In the Bitcoin protocol, there is a four-year halving that halves the rate of coin issuance to miners. The most recent halving made bitcoin even scarcer, especially against the backdrop of many fiat currencies depreciating due to unprecedented monetary and fiscal measures by authorities.<\/p>\n
A tightly limited supply and the regular reduction in emission create the groundwork for longer-term growth for the cryptocurrency, provided demand remains unchanged or grows.<\/p>\n
Against the backdrop of global uncertainty and eroding trust in traditional markets, complemented by heavy monetary pumping, bitcoin has become attractive to large investors with a long horizon.<\/p>\n
This thesis is supported<\/a> by the Chainalysis study. Analysts note that miners have only 3.4 million BTC left to mine. 77% of already mined and unspent coins (14.8 million BTC) are held on \u201cilliquid\u201d wallets, from which on average less than a quarter of the assets obtained move.<\/p>\n
Since hitting the 2017 price peak, on so-called investor wallets the number of bitcoins has increased by almost 3 million.<\/p>\n
Over the same period on trader wallets, characterized by higher liquidity, this metric declined. Chainalysis believes that market speculators provide supply for \u201cnew investors\u201d.<\/p>\n
\n![\"Why](\"https:\/\/u1f987.com\/wp-content\/uploads\/Chainalysis-1.png\")
Experts found confirmation of institutional investors’ involvement in large transfers from exchanges. Data: Chainalysis.<\/figcaption><\/figure>\n<\/div>\n As long-term holders of the first cryptocurrency, analysts singled out institutional investors and corporations. They pointed to purchases by Paul Tudor Jones, Square<\/a> and MicroStrategy<\/a>. For such buyers bitcoin is a hedge against inflation and other macro risks.<\/p>\n
In Chainalysis they concluded that purchases of bitcoin in 2020 compared with 2017 are more strategic than speculative. Analysts forecast a flow of other institutional investors and further mainstream adoption. This would occur if the first cryptocurrency confirms its status as an effective instrument for hedging macroeconomic risks.<\/p>\n
It is also worth noting the related tendency toward gradually reducing selling pressure from miners in the context of halving.<\/p>\n
There is also an unpopular view regarding the halving’s impact on bitcoin\u2019s price. According to Coin Metrics co\u2011founder Nick Carter, there are other significant drivers of bitcoin\u2019s rise.<\/p>\n
\n
\u201cI don\u2019t think the halving affected bitcoin\u2019s price. It\u2019s an event that was known from day one. I think catalysts lie outside the market or in infrastructure,\u201d said Carter.<\/p>\n<\/blockquote>\n
The expert agreed that the current rally is more sustainable than three years ago.<\/p>\n
\u201cThe MicroStrategy Effect\u201d and Institutional Interest<\/h2>\n
In August, analytics software provider MicroStrategy bought<\/a> 21,454 BTC (~$250 million at the time of the deal), becoming the first publicly traded company to allocate part of its capital to bitcoin. In response, Nasdaq-listed shares of MSTR<\/a> jumped in the moment by 14.6%.<\/p>\n
In September CEO Michael Saylor announced additional purchases of 16,796 BTC ($175 million at the time). He assessed<\/a> the company\u2019s total investment in bitcoin at $425 million, including fees and expenses.<\/p>\n
As of November 21, the bitcoins purchased by MicroStrategy are valued at $714 million. That means investments in cryptocurrency rose by 68% \u2014 or $289 million \u2014 in a few months. Yet the company shows no inclination to crystallise gains \u2014 Saylor promised<\/a> not to sell bitcoins in a century.<\/p>\n
These investments sparked significant resonance in the community and beyond \u2014 to many, MicroStrategy added a \u201cplus in karma\u201d to bitcoin. The analyst at Quantum Economics called<\/a> the development the \u201cMicroStrategy effect,\u201d which began a wave of institutional pursuit of bitcoin.<\/p>\n
In early October, the payments company founded by Jack Dorsey announced<\/a> the purchase of bitcoins worth $50 million, accounting for roughly 1% of Square\u2019s total assets.<\/p>\n
Another high-profile manifestation of the \u201cMicroStrategy effect\u201d was the news of launching<\/a> by PayPal the ability to buy and sell bitcoin. The company said the new feature would promote global use of cryptocurrencies and pave the way for central bank digital currencies.<\/p>\n
CEO Dan Schulman believes<\/a> that ultimately bitcoin will be used more for everyday payments than as a store of value.<\/p>\n
In November PayPal opened<\/a> access to bitcoin and several altcoins for US customers. By the first half of 2021 the feature will be available to users in other countries.<\/p>\n
Pantera Capital representatives are convinced<\/a> that PayPal\u2019s support for bitcoin, combined with active purchases via Square\u2019s Cash App, has a material impact on bitcoin\u2019s scarcity and, thus, on the asset\u2019s price.<\/p>\n
According to the company\u2019s estimates, Cash App accounts for 40% of all bitcoin purchases. The recent PayPal launch of a direct cryptocurrency purchasing service is already having a significant market impact, according to the report.<\/p>\n
According to Pantera Capital\u2019s calculations, PayPal users buy about 70% of all bitcoin issued. This is evidenced by rising volumes on the regulated exchange itBit, backed by PayPal partner Paxos.<\/p>\n
Researchers contend that PayPal and Cash App customers are already removing all daily mined bitcoins from circulation.<\/p>\n
\n
\u201cWhere will Cash App users source their coins? This reminds us of supply constraints and inflexibility. They will buy them at higher prices,\u201d concluded the analysts.<\/p>\n<\/blockquote>\n
Recently, Coinbase\u2019s head of Institutional Sales Brett Tejpaul emphasised<\/a> the importance of PayPal and other large players backing the crypto space.<\/p>\n
\n
\u201cFor banks, hedge funds and charities sitting on the sidelines, PayPal\u2019s arrival is a signal. It spurs a second wave of institutional adoption of digital assets,\u201d said Tejpaul.<\/p>\n<\/blockquote>\n
The value of assets held in Coinbase\u2019s custody service has risen from $6 billion in April to $20 billion now. Tejpaul cited the Tagomi acquisition and partnerships with JPMorgan and Deloitte as why the growth accelerated.<\/p>\n
Evidence of the demand from large players for bitcoin and bitcoin-based products is also visible in the performance of Grayscale Investments\u2019 crypto assets \u2014 on 18 November the firm said assets under management had for the first time surpassed<\/span><\/span> $10 billion.<\/p>\n
Just two days later, the total assets under management at Grayscale reached $11.3 billion.<\/p>\n
\n
11\/20\/20 UPDATE: Net Assets Under Management, Holdings per Share, and Market Price per Share for our Investment Products.<\/p>\n
Total AUM: $11.3 billion$BTC<\/a> $BCH<\/a> $ETH<\/a> $ETC<\/a> $ZEN<\/a> $LTC<\/a> $XLM<\/a> $XRP<\/a> $ZEC<\/a> pic.twitter.com\/UwfKviJNaK<\/a><\/p>\n
\u2014 Grayscale (@Grayscale) November 20, 2020<\/a><\/p>\n<\/blockquote>\n