What affected the most Bitcoin price this year?

Bitcoin has once again reached an all-time high price (in USD terms) and it has many people wondering what is driving this latest surge. Wasn’t bitcoin supposed to be dead? 

Andy Bryant, COO of bitFlyer Europe made an analysis of many factors that affected the BTC price recently. He says that, since many people only started paying attention to cryptocurrency after the 2017 ICO bubble or since, it was understandable if they thought that the period up to 2017 and since was just a classical singular boom-bust cycle. But for those who have been following bitcoin for a longer period of time, the pullback and resulting bear market for the last 3+ years have just been one of several similar price cycles in bitcoin’s lifetime; in fact, there have been 4 such cycles since 2009, from bottom to a new peak.

However, while the recent bitcoin price action may resemble previous market cycles, the factors driving recent gains are certainly different this time. In the 2017-18 boom, price was driven largely by the emergence of the ICO model as a new way to quickly raise money, the resulting explosion of new tokens to take advantage of this, and the stampede from retail investors to buy BTC (and ETH) to invest in these new rapidly-appreciating tokens. If that bull market was about retail investors, however, then this bull market is much more centered around institutions. 

First of all, we have started seeing publicly listed companies make very public announcements about investing in bitcoin for treasury management. Microstrategy invested over $450m and then Square shortly after with $50m. Meanwhile, a growing number of renowned billionaire investors like Paul Tudor Jones and Stanley Druckenmiller are announcing that they invested some of their own or their clients money in bitcoin, bringing a fresh dose of institutional legitimacy.

Meanwhile, a growing number of large companies are embracing bitcoin and other cryptocurrencies in their service offerings to customers. Notably, Paypal in the US who launched crypto buy/sell products, and DBS Bank (East Asia’s largest bank) planning to open an exchange, adding to existing FinTech darlings like Revolut and Robinhood catering to millennial investors with cryptocurrency investment tools.

This institutional interest is being turbocharged by the macroeconomic environment. With many economies around the world on their knees due to Covid-19, investors are understandably concerned about the unprecedented injection of monetary and fiscal stimulus by many central banks attempting to stave off the worst economic downturn since the Great Depression. For example, the United States printed more money in the month of June 2020 alone than in the entire two centuries since its founding. Many people have started to worry about the impact that all of this money creation will have on the value of their local currencies, which could potentially lose a lot of their purchasing power, or even descend into hyperinflation. Grayscale, the cryptocurrency trust fund provider for institutional investors, is capitalizing on this sentiment by promoting bitcoin as a hedge to the monetary system, and as a superior store of value than Gold, a classical hedge against currency debasement. Such has been the demand for Grayscale’s OTC bitcoin product GBTC that Grayscale alone is currently frequently acquiring more than the entire new supply of bitcoin each day, just to satisfy demand for their product and remain fully backed. And that’s just one company.

And perhaps most importantly, all of this increasing demand for bitcoin has coincided with a supply shock event, the latest bitcoin halvening, which took place in May 2020 and reduced the emission rate of new bitcoin supply by 50%. This has created a perfect storm, as demand increases at the same time as a large drop in supply, causing a positive feedback loop as a growing amount of fiat chases a shrinking amount of bitcoin. 88% of all present and future bitcoin has already been created, so bitcoin is scarce and getting scarcer. Economic principles tell us, in this environment, prices will need to go up.

Cryptocurrency exchanges are all seeing rising activity as buying momentum increases. As for bitFlyer Europe, the number of verified customers between November 19 and 25 was more than double the weekly average amount from September to mid-October.