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Author: Scott Chipolina
Institutional investors, supply crisis and individual retail FOMO have all pushed Bitcoin prices to unprecedented highs.
- Bitcoin started a bull market, and the price of Bitcoin recently exceeded $40,000.
- Both institutional investors and retail investors have played a role in the rise in bitcoin prices.
- Rafael Schultz-Kraft, CTO of Glassnode, stated that Bitcoin is also in a supply crisis.
Bitcoin has reached an unprecedented bull market. On January 8, 2021, the highest price of Bitcoin exceeded $40,000. In the past 12 months, the price of Bitcoin has risen at an unprecedented rate, from a low of $4,000 to more than $40,000. Since the beginning of 2021, the price of Bitcoin has risen by more than a third. The trend of Bitcoin after its rally from $4,000 is significantly different from the big rally in 2017 for several reasons.
Sam Bankman-Fried, CEO of cryptocurrency exchange FTX, said: “In 2017, price growth was driven by a surge in retail purchases around the world. This year we saw institutions finally start to get involved in crypto. Currency, listed companies have invested tens of billions of dollars in Bitcoin.”
The influx of institutional investors began when MicroStrategy, a business intelligence company, invested more than US$400 million in Bitcoin from August to September 2020.
In October last year, Jack Dorsey’s Square company spent $50 million to buy Bitcoin. At the time of writing, the total value of bitcoin held by these two companies is approximately $2.8 billion and $188 million, respectively, and both have increased significantly.
Other prominent figures in the traditional financial sector have also publicly praised Bitcoin as an asset. The list includes billionaire investor Stanley Druckenmiller and former hedge fund manager Raoul Pal (Raoul Pal). Druckenmiller said that Bitcoin may be a better investment option than gold. Pal invested 75% of his assets in Bitcoin in November last year.
But the unprecedented rise of Bitcoin is not just a big purchase by some celebrities. In fact, retail investors still play a major role.
Fear of missing Bitcoin
Although Bitcoin has attracted many institutional investors in recent months, the ability of cryptocurrencies to attract new retail investors has also contributed to this bull market.
Nathaniel Whittemore, the host of the Bitcoin analysis podcast “Breakdown”, said: “The retail FOMO cycle has started again. Just because the price of Bitcoin exceeds the original price does not mean it still hasn’t underestimated.”
OKEx Intelligence Bureau Note: FOMO (Fear of Missing Out) refers to the anxiety of always worrying about losing or missing something, also known as the “outsider dilemma.”
Retail investors entered the Bitcoin market in large numbers during the 2017 rebound, but there are also obstacles, and many users have difficulty passing the slow KYC. There are also very few exchanges, especially those regulated in the United States. Nowadays, it is easier for novices to access Bitcoin.
Geoff Morphy, president of Bitcoin mining company Bitfarms, said: “Today, individuals and institutions are provided with a highly complex and technical option, and at the same time an alternative to traditional currency storage.”
By far, the most important bitcoin transaction may be the international payment giant PayPal, which announced in November last year that US users can start trading bitcoin on its platform. In less than a month, 17% of PayPal customers said they have used PayPal’s latest features.
There is no doubt that Bitcoin has attracted new investors in recent months, but it has also benefited from everyday retail investors because it is easier for retail investors to enter the market.
Bitcoin’s move to the mainstream has also contributed to the increase of new users in some of the largest Bitcoin exchanges.
Kraken Chief Commercial Officer Bobby Zagotta told Decrypt: “In the past month, Kraken’s customer registrations have rebounded significantly, and the number of accounts created in one day broke the record set in the 2017 bull market. We can continue to see, More people have taken the first step into the digital asset category.”
In addition, cryptocurrencies have been in a supply crisis, which has also pushed the current bull market to record levels.
The data behind the Bitcoin bull market
The biggest indicator of Bitcoin’s continued bull market is that the demand for Bitcoin is growing, but the supply of Bitcoin on exchanges is shrinking.
According to Rafael Scheultze-Kraft, CTO of Glassnode on Twitter, the total amount of bitcoin on exchanges in 2020 has fallen by 20%.
“Bitcoin is in a crisis of supply and liquidity. This is very bullish! And far underestimated. I believe we will see this clearly reflected in the price of Bitcoin in the coming months. Let’s Let’s look at the data.”
“The supply crisis I’m talking about will have an impact on prices, but it will not necessarily prevent retail investors or small investors from entering this field,” Schultze Kraft told Decrypt in December 2020. However, he warned on January 9 that the rally might be adjusted.
At that time, the price of Bitcoin in December was about $24,000, which was 40% lower than the current price. As of press time, the price of Bitcoin was hovering around $34,000, so at least until now, Schultz-Craft seems to be right.