On November 24, bitcoin broke through $19,000 for the first time in almost three years. For many, the milestone conjured memories of bitcoin‘s indelible 2017 rally, but besides similarities in price action, the situation couldn’t be more different this time around.
Ironically, despite how it ended, 2017 started off far from bullish for bitcoin. In January, the People’s Bank of China (PBoC) cracked the regulatory whip on influential domestic crypto exchanges, prompting a drop in trading volume and an overall air of despondency. Yet another setback came in what would be the first of many rejections of a bitcoin exchange-traded fund, with the Winklevoss Twins, Cameron and Tyler, failing to persuade the US Securities and Exchange Commission (SEC) of the benefit of a bitcoin ETF.
Still, even with the grim backdrop, bitcoin defied the sour sentiment—breaking through key price milestones time and again.
By the end of November 2017, bitcoin had seized $10,000—a 950% advance from the start of the year. However, it was the entry of global derivatives marketplace, the Chicago Mercantile Exchange (CME), and the first regulated bitcoin futures offering that catalyzed the vertical leap to $20,000.
The mainstream media similarly played its part, capitalizing on the interest in bitcoin‘s lofty incline and supplying the asset airtime in front of a new and largely uninformed demographic of retail investors. As a result, almost as soon as bitcoin‘s all-time high of $20,000 had arrived, it was gone—leaving retail investors holding the bag.
Jump forward to 2020, and though price action looks to be on a similar trajectory, things couldn’t be more different. Year to date, Bitcoin has added 150% to its price point, climbing from $7,100 in January to over $18,000 at press time. And this time, it’s not all been founded on media-fueled retail speculation.
Per Bloomberg, who tracked news stories mentioning bitcoin alongside price, the media circus that helped boost bitcoin‘s price point in 2017, is nowhere to be seen this time around.
As a consequence, retail engagement is scarce; a look at Google Trends confirms this. Search results for the term “bitcoin” have been comparatively lackluster when set against 2017 levels. This shows that retail hasn’t really caught wind yet, or simply doesn’t care as much—leading to less “dumb” money in the mix and possibly a more sustained rally.
In retail investors’ stead, this rally is seemingly being driven by the corporate and institutional approval of bitcoin.
Institutional, Not Retail
With a hefty reliance on quantitative easing as a means to temper the economic fallout of the coronavirus pandemic, institutional investors are quickly falling out of love with fiat and making eyes at bitcoin.
The crypto foray of both business intelligence firm MicroStrategy and payment processor Square is a testament to the growing disillusionment of cash amid unconventional monetary policy and subsequent debasement.
To date, there are 23 firms around the world holding a cumulative 842,364 BTC—roughly 4% of bitcoin‘s current supply, per data from bitcointreasuries.org.
For almost all of the companies on this list, it’s bitcoin‘s deflationary supply that positions it as such an appealing hedge against the kinds of macro risk currently facing the broader markets.
Bitcoin Is Stronger Than Ever
While sentiment has seen a major hike in this market cycle, so too has bitcoin‘s quantitative and qualitative fundamentals.
Per data from Coinmetrics, the number of active bitcoin addresses containing more than $10 in BTC is towering above 2017 levels, indicating that bitcoin both more dispersed and—given the relatively low amount being held—that retail investors are holding strong.
But it’s not just retail. Another important metric comes via digital asset fund manager Grayscale and supports the theory that institutional money is becoming far more engaged.
Per the latest estimates, Grayscale is currently holding around 500,000 BTC—encompassing 2.69% of bitcoin’s total current supply. Given Grayscale predominantly caters to institutional players, this is a positive sign of engagement outside of the corporate trend of bitcoin adoption for treasury reserves.
Another affirmation of adoption is that open interest—the aggregate value of non-settled contracts—is near all-time highs on the CME bitcoin futures market. Being a regulated entity primarily used by institutional players, the uptick of interest on the CME bodes well for bitcoin‘s future prospects.
Ironically, the lack of a regulated market served as one of the reasons for the SEC’s dismissal of the Winklevoss’ bitcoin ETF proposal in 2017. With interest and volumes piquing in the well-established market, an ETF could well be on the cards—something that would provide even more exposure for BTC.
Last but by no means least, PayPal’s foray, despite its various pitfalls, is another major factor this time around. Rolling out bitcoin buying and selling services to its 325 million customers in 2021, will likely give bitcoin the leg up it needs to sustain a more substantial long-term rally than the one in 2017.