Bitcoin Breaches $60k!
VYSYN Ventures Weekly Insights #43
Bitcoin has sustained a bullish trend that started in Q4 2020. While a few pullbacks have occurred, the upward trend has continued throughout. The ebullient momentum has seen the price of Bitcoin more than double in 2021, and the price recently broke it’s all-time high of $58.3 to surpass $60k.
In the latest VYSYN Ventures release, we will be analyzing the drivers behind the bullish movements. We break down the presence of institutional investors in the market and highlight how this changes market dynamics. We also highlight some of the reasons why the bullish momentum is likely to continue.
Bitcoin Bull Market Kickstarts After Renowned Investors Endorse Asset
Bitcoin price broke from a phase of consolidation in October 2020 as renowned investors began advocating Bitcoin as a strong investor. Paul Tudor Jones and Stan Druckenmiller publicly endorsed the original cryptocurrency.
Paul Tudor Jones compared investing in Bitcoin to investing in early tech companies and also admitted owning some Bitcoins. Shortly after Jones’ comment, Druckenmiller showed his support. He described Bitcoin as “an asset class that has a lot of attraction as a store of value to both millennials and the new West Coast money”. At the time of speaking, Stan Druckenmiller claimed to have a larger capital allocation in gold but anticipated that his Bitcoin bets would outperform..
Shortly after these comments, big corporations and investment companies began revealing their participation in the Bitcoin market. In November 2020, Grayscale announced that it held over 500,000 Bitcoins in its portfolio. It also noted that over 90% of its holdings were from institutional investors. In Q4, 2020, Grayscale recorded an inflow of $2.8 billion into its Bitcoin Trust. This brought the total Grayscale Bitcoin Trust to $4.7 billion, over four times the cumulative inflows of the previous six years.
Corporations Accelerate Bullish Bitcoin Trend
Since the beginning of 2021, open participation by institutional investors in the Bitcoin market has become a pattern. One of the big names in this category is Elon Musk’s electric car manufacturing company that bought $1.5 billion worth of Bitcoins in January 2021. Others include Michael Saylor’s MicroStrategy that holds over 90,000 Bitcoins and Square that has invested a cumulative $220 million into Bitcoin.
The influx of institutional investors as shown above appears to be the difference between the current bull-run and previous uptrends in the Bitcoin market. In the past, when the market was dominated by speculators with relatively short-term targets, significant pullbacks occurred more regularly and were more pronounced. However, with the long-term investment mandate of institutions, there is less pressure on the market during declines and a more constricted floating supply, making the price less susceptible to delines.
So far, there have been classical situations that would normally lead to a trend reversal, but Bitcoin price keeps bouncing back, highlighting the presence of long-term significant holders like institutions. Outside the United States, more big names are entering the market, further propelling the bullish momentum. Leading Israeli asset manager, Altshuler Shaham invested $100 million into the shares of Grayscale Bitcoin Trust (GBTC) at the end of 2020. The company claims to have already taken profits on about 30% of its initial investment since early February when Bitcoin hit new highs. Chinese beauty app maker Meitu also revealed that it has invested $40 million in Bitcoin and Ethereum. Aker, a Norwegian energy engineering company has also joined the corporate organizations that are investing in Bitcoin. The company recently invested $58 million for 1,170 Bitcoins.
Bitcoin Breaks All-Time Highs
Bitcoin bounced strongly from a recent pullback and returned quickly to new all-time high (ATH). Within two weeks of the decline bottom, Bitcoin surpassed its previous all-time-high of $58.3k and beyond $60. With price trading above $60k, significant resistance levels have been surpassed and bullish momentum may accelerate.
Moreover, on-chain data suggests that the bullish momentum is not slowing down. The percentage of 1+ year holders remains high at roughly 56%, from a peak of 63% in September. Compared to the last market cycle, Bitcoin dropped from a peak of 61% in January 2016 to 41% in March 2018.
Similarly, there has been an increase in the number of Bitcoin flowing from exchanges to self-hosted wallets, suggesting an increased propensity towards long-term holding. The percentage of Bitcoin supply held on exchanges has dropped from 16% in March 2020 to roughly 13% one year later.
The combination of more corporate buyers and an increased propensity towards long-term holding, there are certainty bullish tailwinds behind Bitcoin. With only a limited supply, companies and individuals alike are scrambling to secure a slice of the scarce asset. This latest all-time high appears to be only the latest in a prolonged series of record highs.