Crypto Market Intel: Bitcoin’s ATH is driven by big new investors & low liquidity
By: Faisal Khan
Tags: Bitcoin, Finance, Economics, Investing, Business

BITCOIN ALL-TIME HIGH

Crypto Market Intel: Bitcoin’s ATH is driven by big new investors & low liquidity

It took Bitcoin exactly three years to post its new ATH, closing in on $24k — an extraordinary climb of 26% within one week

If there was one thing to cheer about in 2020, it was the phenomenal growth of Cryptos, lead by the premier digital coin Bitcoin (BTC). At least the crypto traders and investors would say so. There would be very few assets in the financial world that could claim gains of over 200%. Last week was all about Bitcoin’s climb towards its new all-time high of $23,800 — at the time of writing, BTC is trading around $23,140.

BTC is now officially in unchartered price territory as it propelled higher from its previous ATH posted exactly three years ago on Dec. 17, 2017. However, there is one key difference between the two ATHs. While the previous one resulted due to euphoric buying by amateur traders, the recent one is driven by greater demand from institutional buyers — especially in North America.

With every set of new data that we look at, the increasing role of the institutional investors becomes clearer. According to the latest edition of Chainalysis Market Intel, $20+ million investors have acquired half a million bitcoin since September, currently worth $11.5 billion (left chart above). As you can see from the chart, the price of Bitcoin is pretty tightly correlated with the change in BTC held — especially since September.

The same research also highlights another trend — tracking the change in bitcoin held this year in investor wallets that hold 1,000 or more bitcoin (right chart above), but that have held bitcoin for less than a year (< 6 months or 6 months+). As the accumulation of BTC by investors began in September, the strong demand ever since has pushed the price from $10k to above $20k.

Looking at the numbers in the second chart, 801k fewer bitcoin were sent last week compared to the week before 2017’s all-time high on 17 December — of which 546k fewer bitcoin was sent by short term traders. This is significant because short term traders are usually the first ones to book their profits when a financial asset reaches such a milestone. Investors who have recently acquired their bitcoin are also holding on to it more than they did in 2017, sending 318k fewer bitcoin. This is adding to the lack of liquidity.

For investors, who have held their bitcoin for more than six months, have added 68k bitcoin to current liquidity relative to 2017. This shows that although the majority of the traders/investors are bullish on the premier digital asset, others are more cautious in booking their profits at these elevated prices. This also highlights that the seller's dynamic has also changed this time for Bitcoin.

There is no change in the underlying bullish sentiment to signify any major correction for now. But now that Bitcoin has entered uncharted territory and posted a new ATH, a correction here might be healthy and a mark of a matured financial asset. The current macroeconomic environment is also helping BTC sustain the bullish momentum as the supply shrinks due to a larger institutional interest and shrinking liquidity.

Stay informed with the content that matters — Join my mailing list