To the delight of many supporters, Bitcoin (BTC) has risen to $28,400. Just like years ago, it feels like a strong market rally. What makes Bitcoin fly to the moon these days and does the price increase have the same reason as in 2017? Read on!
Crypto is a real revolution, and we are happy that Bitcoin is on the news every day, and more and more people have gained interest. Still, it is essential to look at the long-term direction of the cryptocurrency. After all, this market is volatile, more than many other types of financial markets.
However, it is important to look further than the volatility of this market. Techwise, we also know that crypto has more potential than other financial instruments. How great is the possibility to send value from your country to a contact in another continent without complicated verification processes and days of waiting?
All very interesting, but...
Why has Bitcoin increased in value?
There are several reasons. I'm sure you've noticed that the price increase is a new record. The fact that the price has risen so much means there has been a lot of buying. To answer the why question, it is interesting to answer another question: Who bought Bitcoin?
Not only retail investors but also institutional investors are showing a lot of interest in the cryptocurrency. In recent months, the number of asset managers and banks with Bitcoin in their portfolios has been growing and does not seem to be slowing down for the time being. Just think about the sentiment a few years ago. At that time, Bitcoin was rather seen as a threat to banks and other institutions.
Even the bank giant JPMorgan
now suggests that Bitcoin ''one day could reach the price of $650,000''. Not surprisingly, traditional investors and banks are now starting to show more interest.
For example, Grayscale
Bitcoin Trust invested more and more in Bitcoin in the fourth quarter of 2020. Grayscale's clients are mainly institutional investors who usually participate in traditional financial markets. Compared to the third quarter, Grayscale Bitcoin Trust now reports three times higher figures than the current quarter.
A few days ago, the educational investor website ETF Trends also reported that institutional investors drove the current rally. Cryptoquant's CEO, King-Young Ju, also sent a remarkable tweet to the world today: "Institutional investors now own 16% of Bitcoin's realized market capitalization."
Is the 2020 rally the same as the 2017 rally?
Of course, 'ordinary people' also have a share in Bitcoin's rise in value. Square's
popular mobile payment service, Cash App, saw $1.6 billion in Bitcoin purchases in the third quarter. Retail investors made these purchases.
In 2017, the increase was mainly due to retail investors. Not only did Bitcoin rise significantly during that period, but many small crypto coins also made the headlines. Examples include Ripple
(XRP) and Ethereum (ETH).
However, the current period seems to differ significantly from the 2017 rally. The crypto market was hardly regulated and was still in its infancy. Also, it appears that altcoins are still lagging for a while. Research agency Skew reports that there is no increase in interest in Bitcoin from retail investors. This contrasts with institutional investors who have bought more in the past year.
During the turbulent year of 2017, there were ICOs, or Initial Coin Offerings, every day. Retail investors invested Bitcoin and Ethereum in these ICOs and received new altcoins in return, often at high discounts. After that, the market crashed, and so far, the prices of many altcoins are still not at their peak, as they were in 2017. Even Ethereum
, which has been doing well lately, has not yet reached its all-time high (ATH). In contrary, Bitcoin continues to amaze people almost every day.
Another big difference is the advance of Decentralized Finance, abbreviated to DeFi. This is a collective term for many different systems that allow you to offer loans for crypto coins like Bitcoin, invest in them, trade them, take out insurance, and much more.
Bitcoin in 2021
We are approaching the end of 2020, and it looks like Bitcoin is unstoppable. According to analysts around the world, the number of institutional investments will increase in 2021. The increased interest from institutional investors is promising, and the price may surpass $30,000 in the time ahead.
Furthermore, it seems that retail investors have been a little more passive than institutional investors this year. According to some, this is because the psychological price barrier, which is different for every speculator, has not yet been broken. As soon as Bitcoin experiences another significant increase, this break might happen. This could result in more attention from all kinds of media and an increase in retail investors' investments.
is much more than a payment system. Institutions are starting to buy in, and that is why 2021 might be an excellent year for the crypto market.
This is not a given, so trade consciously and calculated. As long as you understand that this market is volatile, entering the world of Bitcoin is very easy.