While it’s easy to draw parallels between this year’s bull market and the speculative frenzy that sparked the 2017 rally, Bitcoin’s foundation is much stronger today than it was a few years ago.
Bitcoin as a hedge
While there are many statistics that can explain Bitcoin’s resurgence this year, it’s important to start at the very top. Unlike in 2017, investors today are collecting Bitcoin with a clear purpose. The effectiveness of the digital currency as an inflation hedge is leading to wider widespread acceptance, especially among savvy investors who understand monetary policy.
Since its inception, Bitcoin has been a superior store of value than any other asset. The May 2020 deflationary halving event brought the scarcity of Bitcoin to a wider audience than ever before.
As a crypto analysis company Chainanalysis reported last month:
“[…] New buyers and buyers of Bitcoin looking to unload fiat currency for Bitcoin as a hedge against worrying macroeconomic trends are responsible for much of the current demand. “
2020 could be the year major institutions have turned the script on Bitcoin – maybe permanently. Unlike 2017, when Bitcoin’s surge was mainly driven by retail speculation, the 2020 bull market appears to be led by the cold, calculating hands of smart money.
Cointelegraph has been reporting on the gradual uptake of Bitcoin by institutional investors for months. Paul Tudor Jones, Stanley Druckenmiller, Grayscale, PayPal, Square, MassMutual, MicroStrategy, Ruffer Investment Company – these are just some of the names of companies and institutions that have added Bitcoin to their holdings.
Even Jim Cramer, the famous TV personality from CNBC’s Mad Money, bought the recent Bitcoin dip below USD 18,000.
Such names were absent from the retail-fueled euphoria of 2017 when FOMO, or fear of missing out, was the main catalyst behind Bitcoin’s short spike to $ 20,000.
The rise of illiquid portfolios
Another striking difference between the bull market of 2020 and the one that preceded it in 2017 is the amount of Bitcoin in so-called illiquid wallets.
Chain analysis describes illiquid wallets, also known as Bitcoin by investors, as wallets that send less than 25% of the BTC they have ever received. Using this metric, illiquid wallets currently represent more than three-quarters (77%) of the 14.8 million BTC that are not classified as lost. Chainanalysis says this amount has “not moved from its current address for five years or more.”
The firm explains:
“That leaves a pool of just 3.4 million Bitcoin readily available to buyers as demand increases.”
As the following chart illustrates, the amount of “investor Bitcoin” held has risen dramatically since late 2017, when prices last peaked. In other words, investors are buying and holding BTC instead of turning it over for quick profits.
Steady growth of active addresses, wallets with at least 0.1 BTC
Unlike in 2017, when Bitcoin’s network activity spiked with the BTC price, the number of unique active addresses has grown steadily over the past two years, according to data provider Glassnode.
In addition, approximately 19.6 million addresses sent or received Bitcoin in November, marking the third highest monthly total ever recorded.
Data from Glassnode also shows that by June this year, a record number of investors held at least 0.1 BTC. As Cointelegraph reported, more than 2.75 million addresses have consistently held more than this amount since April 2019.