Bitcoin has risen 4.5% in the past 24 hours and is trading at $18,710. After the top cryptocurrency broke through the $18,000 level on Wednesday, it reached as high as $18,483, the highest price since December 2017.
At its current price, Bitcoin is less than $1,500 from its historical high of less than $20,000, which was the last time it was seen in the rally driven by investors in 2017.
According to a report by Chainalysis, a provider of real-time cryptocurrency data and analysis, the continued price increase, although somewhat similar to the price increase in 2017, is “different in some key aspects”, which has the key conditions to promote the rise. There are also several conditions different from 2017 that are driving market development.
Bitcoin demand is now higher than its supply
Chainalysis analysis pointed out: “The price of Bitcoin is rising because the demand for Bitcoin is increasing when there are relatively few Bitcoins available for purchase.”
With the increase in mining volume, the number of bitcoins in circulation is increasing every day, but now the supply of bitcoins in the market depends on whether existing holders are willing to sell or trade their bitcoins.
According to this report, Chainalysis analyzes the trading willingness of Bitcoin investors by comparing the liquidity and illiquidity of Bitcoin since 2017.
When the bitcoin held in the wallet sent by an investor exceeds 25%, liquidity will increase; for investors whose liquidity is less than 25% of their total bitcoin, liquidity is insufficient. Lower liquidity is usually caused by “buy” investors who plan to hold bitcoin for a long time.
The number of bitcoins currently circulating in the market is similar to the 2017 bull market. However, the report states that 77% of bitcoins are kept in illiquid wallets, which is equivalent to 14.8 million bitcoins, which have not been moved in five years.
“As demand increases, buyers can easily obtain reserves of only 3.4 million bitcoins.”
Increased transaction intensity and exchange inflows are two good indicators of demand growth. Data from Chainalysis shows that transaction intensity is now 38% higher than the 180-day average.
Strong demand from Bitcoin institutions
Unlike the purchase of Bitcoin by skilled individuals and retailers in 2017, current demand is driven by institutional demand, and investors seek to hedge against the legal inflation caused by the coronavirus.
In 2020, well-known investors like Paul Tudor Jones, Michael Saylor, and most recently Salinas Pliego have invested millions of dollars in Bitcoin.
“The switch to cryptocurrency by institutions seems to be driven by the desire to hedge against macroeconomic uncertainty. Of course, the uncertainty has not decreased this year.
Chainalysis concluded that the new trend of institutional investment in Bitcoin is good news for the crypto market.
“Investors have become smarter and more strategic, buying Bitcoin to meet specific use cases, rather than chasing new hot assets.”
If Bitcoin insists on its ability to withstand inflation, then more institutional investors will invest more money in the asset, leading to more mainstream market attention.
