This has been a big week for Bitcoin.
As the world has been gripped by the nail-biting drama that is the US Presidential election, and the number of daily COVID cases in the United States continue to rise to new all-time highs, Bitcoin has not been the recipient of a whole lot of main-stream coverage.
Perhaps that is why Nic Carter, “anti-authoritarian technology” investor and renowned Crypto Twitter commentator, referred to BTC’s move past $15,000 this week as the “quietest bull run ever.”
Quietest bull run ever
— nic carter (@nic__carter) November 5, 2020
“This is a natural trend but it’s especially relevant now when the value of the capital held in cash is being quickly diluted,” Lykke added.
Indeed, Chainalysis’s Philip Gradwell said that at the moment, “investors hold 77% of available bitcoin, which is bitcoin that has been mined and not lost. Since mid-March, investors tend to be Western, and purchasing bitcoin with fiat, rather than purchasing with other cryptocurrencies. At least 200k bitcoin has moved net to North America, and at least 220k bitcoin has moved net to fiat exchanges, since mid-March.”
Institutional Investors Play an Important Role in the BTC Price Boost
In addition to the increase of long-term hodlers and new BTC buyers, Lykke pointed out that “we have seen companies like Grayscale Trust, Square, and Microstrategy buy large amounts of bitcoin” over the last two months.
“For each of these entities, a large number of retail investors would need to enter the market in order to push the price upwards as much as they did.
Steve Ehrlich, Founder and Chief Executive of Voyager Digital, also pointed out to Finance Magnates that BTC is still being boosted by PayPal’s recent introduction of crypto services, which “received 3x more interest than was initially anticipated.”
“For all intents and purposes, Bitcoin and crypto have gone mainstream. With MicroStrategies adding hundreds of millions of dollars to their balance sheet & Square adding $50 million of Bitcoin to its balance sheet, it’s no longer just retail customers and speculative investors buying up Bitcoin,” Ehrlich said. “It’s institutions and public companies migrating cash reserves into the decentralized asset.”
The Bull Rally Is “Likely to Continue,” but the Market Could Still “Unwind”
So, what’s next?
Chainalysis’s Phillip Gradwell believes that “the bull rally is likely to continue.”
“The world has a lot of macroeconomic uncertainty,” he said, “and relatively few assets that perform well in this uncertainty. Bitcoin is now viewed as one of these assets and there are relatively few Bitcoin available.”
As a result, “people who already own bitcoin are largely continuing to hold, and those who are selling are outnumbered by those who are buying.”
Still, it is not impossible that the seemingly bullet-proof rally that BTC is currently steeped in could come to an end. “Given that Western investors are driving the current market as they look for a hedge against macroeconomic uncertainty, there are three ways the current market could unwind,” Gradwell said.
The first of these three possible unwindings could be a reduction in macroeconomic uncertainty: “now, that has not been the direction of 2020,” Gradwell acknowledged. “But bitcoin investors need to pay attention to how broader financial markets move in response to news, for example, a Covid vaccine.”
“The second way is that the bitcoin price goes high enough that investors decide to realise their gains,” he continued. “Investors who hold bitcoin as part of a larger portfolio, and who have mandates to deliver fiat returns, likely now hold significant amounts of bitcoin. They will have a price they will sell at.”
The third possible undoing of the bull rally could be “[if] bitcoin stops looking like digital gold.”
“This could happen if bitcoin gets included in new cryptocurrency experiments, such as Decentralised Finance (DeFi), which has proved very volatile.”
“As Demand Increases, Scarcer Supply Leads to Higher Prices.”
While all three of these possible unwindings are not out of the realm of possibility, it seems that the market still has a decent amount of time before the rally could be shaken.
Indeed, in the meantime, “the high Bitcoin price is going to attract a lot of attention,” Gradwell said. “The price has only closed above $14k on 34 days and above $15k on 22 days. This is likely to create a positive feedback loop for prices, where the more people who hold bitcoin as a hedge against macroeconomic uncertainty, the less there is available to buy.”
“As demand increases, scarcer supply leads to higher prices. This makes bitcoin an increasingly attractive asset, leading to yet more demand, even scarcer supply, and higher prices.”
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