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Original title: What is the difference between this bull market and 2017? See what the data say
As of the time of writing this article on November 19, 2020, the price of Bitcoin is hovering around $18,000, which means one thing: We are in the midst of a price surge that has not occurred since the famous bull market at the end of 2017, when Bitcoin The price reached around 20,000. However, although I would like to compare today with 2017, the current price increase is different in some key aspects.
Below, we outline the underlying conditions that are driving Bitcoin’s current price increase and explain several key differences compared to the situation in 2017.
Why is Bitcoin now rising again?
The price of Bitcoin is rising because the demand for Bitcoin is increasing when the number of Bitcoins available for purchase is relatively small. Although the total supply of Bitcoin is increasing every day as the amount of mining increases, the actual amount that can be purchased depends on whether the holder is willing to sell or trade.
According to Chainalysis analysis, we quantify this amount by tracking the number of bitcoins held in wallets. If these wallets send less than 25% of the bitcoins they once received, we call it illiquid or investor-held On the contrary, the number of bitcoins held in the wallet is less than the number of bitcoins sent, which is what we call liquidity or bitcoins held by traders.
The figure below shows how the relationship between the number of bitcoins in each category and the price has changed since January 2017, thereby capturing the current price increase and the market dynamics of the 2017 price increase.
Currently, the amount of liquid Bitcoin is similar to the amount during the 2017 bull market. But the amount held in an illiquid wallet is much higher, currently accounting for 77% of the 14.8 million bitcoin mined (not classified as lost), which means it has not been from the current address for five years or more Remove.
As demand increases, buyers can easily obtain reserves of only 3.4 million bitcoins. Demand continues to increase, as evidenced by the influx of exchanges and the intensity of transactions on exchanges. The transaction strength indicator measures the number of transactions of each spot bitcoin deposited on the exchange before leaving the exchange platform, and can well represent the demand for bitcoin on a specific exchange. This indicator is currently 38% higher than the 180-day average.
How is the current Bitcoin rise different from 2017?
The key difference is who buys bitcoin and why. In 2017, most of the demand came from individuals, retail investors , who purchased with their own personal funds, many of whom have varying degrees of experience and knowledge in cryptocurrency. As previously reported, 2020 is the year when institutional funds begin to flow into Bitcoin. This includes well-known investors like hedge fund manager Paul Dudd Jones, who compares the purchase of Bitcoin with early investments in Apple or Google, and companies like Square, which have invested $50 million or a total of 1% of assets, etc., mainstream companies and financial institutions are turning to Bitcoin.
The switch to cryptocurrency by institutions seems to be driven by the willingness to hedge against macroeconomic uncertainty, and of course, the uncertainty has not diminished this year. Jones himself said it very well. He said: “As early as March and April, given the Fed’s monetary policy, the incredible quantitative easing policy they are taking, and the measures that other central banks are taking, this has changed. It’s very obvious. This is unprecedented… People have to start thinking about how to defend against inflation.”
The data also proves the story of such institutional investment. On the one hand, we see an increase in high-value transfers sent from exchanges in 2020.
The number of exchanges sending transfers worth $1 million or more in 2020 has increased by 19%, and the price of Bitcoin has exceeded $10,000 compared to 2017. This shows that the individuals making these transfers have more money to spend and, as we expected, larger investors are getting involved.
Compared with 2017 (where more Asian trading activities drove market growth), during this surge period, we also saw a large inflow of funds from exchanges primarily serving North America.
In the early days of the 2017 bull market, North American exchanges had a net loss of Bitcoin, and as prices began to peak, North American exchanges became net recipients. But this time, North American exchanges have been green, and inflows have risen to a higher level than they were in 2017 during the past few months. This is what we want to see, because institutional investors (mainly in North America and Europe) driving the current surge are more likely to buy Bitcoin on these exchanges for ease of use and regulatory reasons.
Similarly, compared to 2017, we have also seen a significant increase in net inflows from exchanges, allowing cryptocurrency to fiat currency (C2F) trading.
Compared to 2017, C2F exchanges have played a greater role in this surge, when crypto-to-crypto (C2C) exchanges, which were mainly conducted by traders for many different types of cryptocurrency transactions, promoted more markets. Coupled with the accumulation of bitcoins in investor wallets held for a long time, it shows that buyers who buy bitcoin for the first time and those who want to use legal currency to exchange bitcoins as a hedge against macroeconomic trends are the main reasons for this demand.
When we compare Bitcoin’s use this year with Ethereum, investors’ views on Bitcoin as a safe-haven asset become clearer. In addition, the number of bitcoins becoming illiquid is greater than ever because they enter wallets, and the bitcoins sent out by these wallets are much less than the amount inflows, that is, these bitcoins are treated as long-term investments. Come to hold. On the other hand, Ethereum is becoming more liquid, flowing into wallets that are not only frequent but also new.
The above figure shows that since mid-March, more than 8 million ETH has flowed into the mobile wallet in less than a month. This represents a structural change in the way Ethereum is used, because Ethereum has never been transferred to new wallets with frequent transactions so frequently. As users send ETH to the DeFi protocol, DeFi is promoting the development of this new use case, in which Ethereum can be used to trade various assets in pursuit of revenue. This difference in usage did not exist in 2017-at that time, as prices rose, investors seemed to buy different cryptocurrencies more indiscriminately during the hype. The differentiated development of Bitcoin and Ethereum use cases in 2020 indicates that the market will become more mature. Given the influx of institutional investors driving the current surge in Bitcoin prices, people can expect this market to mature further.
This is good news for cryptocurrencies
Although we don’t know whether the price will continue to rise, the current Bitcoin surge indicates a bright future for cryptocurrencies-not only because of price increases, but also because of price increases. Comparing this bull market with the 2017 bull market shows that investors are becoming more savvy and more strategic, buying Bitcoin to meet specific use cases instead of guessing about new hot assets. If Bitcoin can continue to be an effective hedging tool against macroeconomic trends, we believe that more and more institutional investors will invest funds into the asset, leading to more mainstream adoption.