The rise in price was followed by a bullish rally, which experts predict a long-term outlook. However, this year's trend has features that distinguish it from similar upswings in previous years. This rally is often compared to the 2017 rally, but things have changed since then. Here's what is typical for the Bitcoin market today:
What do these factors indicate? The reputation of Bitcoin among large institutional market players and retail investors is growing, and fewer who consider it a dubious investment vehicle.
Bitcoin, referred to as digital gold, has gained 158% since the beginning of the year.
Compare this dynamics with the growth of the most popular traditional financial assets - gold and S&P 500 stocks. The former added only 23% in price, while the quotes of the latter only 10%. The price of Bitcoin is confidently moving to a historical maximum, from which it is separated by only 6.85%.
How were things in 2017? At that time, there were not so many institutional investors on the market, and it was objectively not ready for it. They did not believe in Bitcoin and many of them spoke out about it very harshly, take the same head of JPMorgan, who, without hesitation, called the first crypto a scam. And with all this, Google Trends data for the query 'bitcoin' suggests that the indicatorundefined its popularity then was 5 times higher than in 2020. Now interest in Bitcoin has increased not only in the wake of its growth, but also due to the fact that it is now being spoken about from everywhere, and this is done by serious people worthy of trust.
Once every four years, an algorithm-based phenomenon called halving occurs on the Bitcoin network. Halving assumes a halving of the emission rate so that the coin does not depreciate. Usually, within a year after this event, Bitcoin grows significantly, and this year's halving was no exception. Now the coin is even more valuable amid the depreciation of fiat currencies caused by short-sighted attempts by politicians to fight the global economic recession.
Limited supply generates great demand, and this is gradually happening with Bitcoin, inversely with the process taking place with fiat, which is increasingly discrediting itself as a profitable investment tool. Therefore, large undefined investors are increasingly investing in Bitcoin - they see more profit prospects in it.
Analysts at Chainalysis calculated that there are not so many Bitcoins left for miners to mine. Only 3.4 million coins - and the issue will stop. 77% of the coins already mined are in wallets with low liquidity, and from highly liquid traders' wallets, Bitcoins go to investors. Moreover, most of the large investors in Bitcoin are corporations and institutions. Thus, they are trying to protect their savings from impending inflation.
If in 2017 the purpose of buying Bitcoin was mainly market speculation, now it is bought more for long-term storage. Experts see the prospect of increasing this trend and mass adoption of Bitcoin as soon as it shows itself as a reliable asset for long-term investment. However, not everyone associates Bitcoin's growth with halving. Although sales pressure from miners decreased after it, it is still not the only factor influencing the first undefined cryptocurrency.
The first sign was the analytical company Micro Strategy, which first bought 21454 BTC, and then 16 796 more. These investments attracted the attention of the world community, since for the first time a public company openly invested part of its capital in cryptocurrency. At the moment, these investments have already brought in 68% of the income in just a couple of months. Other institutions followed the example of the bold pioneers - Micro Strategy convinced them that Bitcoin was worth giving a try.
Such a reputation triumph made large companies understand that cryptocurrencies are the future, and if you want to integrate into the financial world of tomorrow, it is better to make friends with them now. The PayPal payment system did just that - now they have services that support Bitcoin and several other top altcoins. Combined with Square's CashApp payments, PayPal should drive Bitcoin's growth even further. After all, a limited supply generates a price increase, and undefined PayPal customers are already buying up the issued coins en masse in order to force CashApp customers to buy them at higher prices in conditions of scarcity.
Every move towards Bitcoin by a large company brings new large investors to the market. And their profits are growing by leaps and bounds. Grayscale Investments, for example, made $ 1 billion from their cryptocurrency assets in just two days. The wallets of this company hold 2.43% of the entire existing Bitcoin supply. Also, cryptocurrency derivatives are of increasing value to the market. And again, you don't need to go far - the same Grayscale received 85% of their income from Bitcoin trusts. Reliability of investments plus their high profitability is a killer combination for investors.
At the moment, 4% of the total Bitcoin supply is concentrated in the hands of large companies. This is a lot, given the fact that Bitcoins will not be issued for an unlimited amount of time and there are already several million of them undefined are irretrievably lost. Since some large investors always bring others who also come to buy Bitcoin, we will soon face a shortage of the coin, and, therefore, its further growth in price.
The policy of printing new money to inject it into the pandemic-hit economy will inevitably lead to hyperinflation. This news has already undermined people's confidence in the reliability of fiat money as an investment vehicle.
Therefore, investors began to buy gold, and subsequently Bitcoin. When, amid panic, it fell following gold and silver, it suggested a correlation between the price of gold and the price of Bitcoin, but the theory was not confirmed when Bitcoin began to rise in November and gold continued to fall.
Now there is new gold on the market, digital, and that is Bitcoin. Tom Fitzpatrick, managing director of Citibank, compared his market position to gold in the 1970s, when monetary policy took the same direction as it is now. Then gold became undefined a more attractive investment vehicle, and the same is happening with Bitcoin.
Major market players already prefer Bitcoin over gold, such as Stanley Druckenmiller, Soros' former associate in his Quantum fund. Regardless of the country's main currency, Bitcoin will definitely not be depreciated as a result of illiterate financial policies, as happened, for example, with the Venezuelan bolivar, which is the cheapest currency in the world.
Nick Carter of Coin Metrics explains the difference between the 2017 and 2020 rallies with the inappropriate three-year-old market structure for institutional investors. The market was tailored for retail investors who entered it through the ICO. The boom in cryptocurrency startups led to the fact that it was retail investors who dramatically dragged Bitcoin upward, entering other cryptocurrencies through it.
At that time, trading in cryptocurrency derivatives and the lending market were still not at all developed. Now that undefined market participants realized what benefits the attraction of institutional money promises, they created comfortable conditions for their investments, both in cryptocurrency and in its derivatives. Even the Chinese state television channel CCTV noted that today's rally is an institutional race.
Even the growing DeFi market is also playing into the hands of Bitcoin. It would seem that it is tied to other cryptocurrencies, primarily Ethereum. But along with decentralized finance, the volume of bitcoins tokenized on Ethereum is growing. This is possible with the help of special protocols that allow Bitcoin holders using Ethereum to access the profits that DeFi projects promise. Strong demand in this area restricts supply, and we already well know that this means an increase in asset prices.
In total, the distinctive features of the 2020 Bitcoin Rally are:
1) Mass influx of large market players;
2)Focus on the attractiveness of Bitcoin as a long-term investment undefined tool;
3) Popularization of Bitcoin among the opinion leaders of the financial world;
If Bitcoin finally gains a reputation as an effective tool for hedging investment risks associated with negative macroeconomic trends, these trends will only intensify.
And this, in turn, will create even more favorable conditions for the growth of the price of Bitcoin and the toughening of the struggle for the right to own the No. 1 cryptocurrency.
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