Bitcoin price is approaching $19,000, but the current rally differs from the situation in the cryptocurrency market in 2017. The current rise in the bitcoin rate is associated with the actions of institutional investors.
Analyst firm Chainalysis published the report titled Why Bitcoin is Surging and How This Rally Is Different from 2017 (Hint: It’s Who’s Buying). The document notes that if retail investors were the main buyers of bitcoins in 2017, then 2020 can be called the year of the arrival of institutional investors in the crypto market. This led to a change in the strategies that dominate the crypto market.
“As anyone who reads the news can tell you, 2020 is the year institutional dollars began flowing into Bitcoin.” As evidence, Chainalysis cites statistics of large withdrawals of bitcoins from crypto exchanges (worth more than $1 million). In 2020, this indicator demonstrates stable growth.
Institutionals buy bitcoins on the market and don’t sell them. As a result, demand for bitcoins exceeds supply.
“Bitcoin’s price is rising because demand for Bitcoin is increasing at a time when there’s relatively few Bitcoin available to buy. While the total supply of Bitcoin grows every day as more is mined, the actual amount available to buy depends on whether holders want to sell or trade it.”
According to Chainalysis, the share of bitcoins stored in illiquid or investor-held Bitcoin wallets (wallets that send less than 25% of Bitcoin they’ve ever received) reached a record 77% of the number of bitcoins in circulation (issued coins minus those that can be considered lost, as they haven’t moved from their current address in five years or longer).
The company’s analysts suggest that macroeconomic uncertainty is the main driver behind the current rally in Bitcoin. Amid ongoing market panic, financial institutions are forced to seek alternatives such as Bitcoin to hedge their risks.
“Back in March and April, it became really apparent, given the monetary policy that was being pursued by the Fed, the incredible quantitative easing they were doing and other central banks were doing, that we were in an unprecedented time…one had to begin to think about how you defend yourself against inflation.”