Marquette Associates Login People Expertise Services Research About Contact Research Home › Research › Bulls on Parade: What’s Driving the 2021 Digital Asset Rally? Bulls on Parade: What’s Driving the 2021 Digital Asset Rally? November 18, 2021 | Nic Solecki, Research Associate The first bitcoin futures ETF — the ProShares Bitcoin Strategy ETF — was approved on October 15th, making it easier for investors to access the most well-known cryptocurrency. Not surprisingly, Bitcoin’s network value (the market capitalization) surged on the announcement, reaching $1.13T (equating to $61,571 per coin). However, this was not the first time Bitcoin’s capitalization crossed $1T: as the orange line in the chart shows, Bitcoin’s total value has crossed this threshold several times since 2020, with significant volatility along the way. Certainly, the ProShares ETF approval has provided more access to investors, and the October run-up can at least be partially attributed to this new channel. However, there also appears to be an evolving demand dynamic in terms of investor type, which could create broader acceptance of cryptocurrency as an asset class in the coming years. We can examine this trend by looking at the types of transactions on the bitcoin network to see what has changed over the last five years. Illustrated in blue and on the left axis is bitcoin’s daily exchange-to-network flow ratio: this measures bitcoin transfers on open exchanges (both inflows and outflows) as a percent of total network transfers. The total network is a classic ledger of accounts, the blockchain technology which serves as the foundation for all cryptocurrencies; transfers are debits and credits to and from accounts. Transfers are classified as either open exchange (retail investors), or over the counter (i.e., wholesale, OTC — more akin to institutional investors). As the ratios in blue approximate open exchange flows, the remaining network transfers approximate OTC flows. Overlaying exchange flows and network value propounds the degree to which exchanges drive or do not drive asset appreciation. To that point, the data illustrated above suggests three points: Historically, retail participants via open exchanges drove Bitcoin demand. Daily exchange-to-network flows surged from mid-2017 through mid-2020, averaging ~35.2%, with a high of 99.4%. Around August 2020, the drivers of demand shifted. Daily exchange-to-network flows decreased and have sustained five-year lows, averaging ~15.4% in 2021, with a low of 0.8%. OTC transfers correspond with the 2021 rally, averaging ~84.6% of network transfers. Although it is not definitive, this implies institutional wholesale transfers are the dominant driver of Bitcoin’s value appreciation through 2021. Taking this analysis a step further, it appears that more institutional money is driving demand for bitcoin. In the past, the infancy of the asset class coupled with the radical volatility of returns was enough to frighten most institutional investors off. If the trend suggested by this chart continues, however, bitcoin and other cryptocurrencies may become a more common holding across institutional portfolios. Print PDF > Bulls on Parade: What’s Driving the 2021 Digital Asset Rally? The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. Nic Solecki Research Associate Get to Know Nic RELATED CONTENT 11.29.2021 In Context Video: Is the 60/40 Portfolio Dead Forever? In this video, the authors of our recent white paper discuss the 60/40 model portfolio —… Watch video 11.23.2021 Certainty Over Uncertainty: Biden Nominates Powell for Another Term as Fed Chair In a move especially pivotal given today’s elevated inflation as the economy is resuscitated out of the pandemic, President Joe… Read article 11.11.2021 Defined Contribution Plan Legislative Update – 4Q 2021 This legislative update covers Congress’ continued negotiation of retirement legislation with the hope of finalizing Secure Act 2.0 early next… Read article 11.10.2021 Holiday Supply Chain Woes Linger Headlines continue to buzz with worries of supply network dysfunction that seem to span every link of the chain, from… Read article 11.09.2021 China: Regulators, Mount Up! Over the last year, the Chinese government has enacted a series of new regulations targeting several domestic industries including finance,… Read article 11.04.2021 The More the Merrier? A driving force for most investors seeking to add a private equity allocation to their portfolios is the strong performance… Read article More articles Subscribe to Research Email Alerts Subscribe © 2021 Marquette Associates. All Rights Reserved. Terms of Use Privacy Policy & Disclosure Documents Environmental Policy Chicago 180 North LaSalle Street Suite 3500 Chicago, Illinois 60601 Tel: 312.527.5500 Fax: 312.527.9064 Baltimore 1312 Bellona Avenue Suite 300 Lutherville, Maryland 21093 Tel: 410.825.0444 Fax: 410.825.1777 Milwaukee 735 N. Water Street Suite 1440 Milwaukee, WI 53202 Tel: 414.209.3290 Philadelphia 600 Willowbrook Lane Suite 610 West Chester, PA 19382 Tel: 610.719.0300 Fax: 610.719.8345 St. Louis 12412 Powerscourt Drive Suite 240 St. Louis, Missouri 63131 Tel: 314.822.4444 Fax: 314.822.4401