2021 will be a significant year for Bitcoin as the price climbs to $ 40,000 – more than double its all-time high of 2017. With HODLers rejoicing and naysayers remaining in disbelief, it’s important to note that since 2017, the world has been changed a lot so that this bull runs infinitely different from the previous one.
Aside from the global pandemic and political chaos, many other things have changed in recent years, even in the microcosm of Bitcoin. In summary:
- Bitcoin, no shitcoins
- Accumulation, not trade
- Institutions, not consumers
Bitcoin, no shitcoins
In 2017, Bitcoin was like a gateway drug for all crypto. People didn’t necessarily see Bitcoin as a long-term investment. They used Bitcoin to exchange altcoins and get into ICOs – and promised fortunes in hopes of getting dirty rich.
2017 marked the first time the mainstream public was exposed to crypto assets and when it happened it was like the Wild West. Regulation was close to zero and anyone with some money could turn up a token and list it on an exchange. There was no consumer protection and suddenly everyone was an expert in evaluating early-stage blockchain-based “investments”.
This led to the ICO craze where everyone from your Uber driver to seasoned Silicon Valley investors has been blinded by the hype and burned into fundamentally unsound investments. To my chagrin, the majority of NoCoiners today probably remember Bitcoin and crypto. These New York Times Article is the epitome of 2017 crypto mania:
Much of the hype and money that was supposed to be made in 2017 was outside of Bitcoin, so Fiat’s capital flowed into Bitcoin and then into pretty much every other cryptocurrency. From then on, it was essentially about shit as the token / early investor makers took everyone’s money by ditching their pockets. (Reminder: Satoshi has never sold Bitcoin before.In fact, in the first half of 2018, over 86 percent of all ICOs listed in 2017 had fallen below their original list price, and their founders are likely either in jail or enjoying their improper fortune on a beach in a remote area of island paradise.
This time things are different. The money that flows from fiat to bitcoin stays there. Dominance in the Bitcoin market was at an all-time low during the crypto craze in 2017 and is now almost twice as high as it was then.
Altcoin volumes are relatively small, especially among retail investors. The people who dig into altcoins, especially Aether, are those who have experience, not newbies.
Most of the trading activity in crypto takes place in DeFi on the Ethereum blockchain (whale-dominated decentralized exchange that requires technical experience and understanding to use) and in Derivatives markets (CME / Bakkt futures and options for institutional players and offshore futures exchanges such as BitMEX).
Bitcoin is no longer used for trading or as a means of moving capital into other crypto assets. Instead, it is accumulated over the long term.
Accumulation, not trade
Over the past two years, over $ 30 billion worth of Bitcoin has accumulated over the long term. There are currently a total of 2.814 million Bitcoin in collective addresses – that is 15.16 percent of all Bitcoins in circulation.
62.31 percent of all bitcoin in circulation has not been moved in over a year, and less than 15 percent of that is actively traded on exchanges. That much Bitcoin has not been HODLed since 2017. As you can see, that number fell during the bull run when altcoins / ICO investments were popular:
People don’t trade bitcoin, they accumulate more and more of it over time and hold it for the long term (aka “piling sats”). This is evident not only in the raw data and exchange flows in the chain, but also in consumer behavior.
people are Dollar cost averaging (DCAing), buy the dip and get Bitcoin back rewards. Consumer Bitcoin products see this demand and build on it:
- Cash App, Rive and Swan DCA: Buy x Bitcoin every year
- Ryze Accumulate: Buy the Dip automatically and collect more Bitcoin than DCAing
- Lolli and Fold: Get Bitcoin Back for Everyday Shopping
Why is this shift from trading Bitcoin to accumulating over time?
There are two equally important explanations for this shift:
- The COVID-induced macroeconomic environment
Central banks print unlimited amounts of money and interest rates are close to or below zero. This will inevitably lead to inflation, so capital will flow into inflation hedges like bitcoin, gold, and real estate. Bonds are worthless. Fiat currencies are depreciating day by day. And we saw two currency drops in the past year (Turkey and Lebanon). People hedge the existing financial system as well as fiat inflation through the accumulation of bitcoin.
2. Anthropological and monetary theory: evolution of Bitcoin
All organically adopted money follows a path of evolution: Collector’s item, Store of value, Medium of exchangee and finally Unit of account / reserve assets.
Like gold, shells, and pearls, Bitcoin started out as a collectible. Its scarcity, the unforgivable preciousness of creation, and the price someone else was willing to pay for it were the things that have given it value to the average man.
As a result, it traded heavily as a speculative collectible / commodity from 2016 to 2018, following the same behavioral economic patterns as baseball cards, oil and pork belly futures.
Now Bitcoin is evolving into a store of value – something that retains its purchasing power, maintains wealth, and grows over time. Precious metals, interest-bearing assets, productive land, etc. were traditional stores of value.
Bitcoin joins these ranks as consumers, public corporations, and most importantly, as a consumer. institutional investors buy all Bitcoin as a store of value in an inflationary environment.
Institutions, not retail
The 2017 bull run was led by private investors – everyday people trying to get into Bitcoin and make money. Wise investors thought it was mostly a scam, with the exception of a few notable die-hard people like Chamath Palihapitiya and the Winklevoss Twins.
This time, everyday consumers are paying less attention. Part of it is that every single person is worn out by the 2020 dumpster fire and people are not interested in Bitcoin right now. Part of that is the focus of media coverage on pressing issues like COVID-19 vaccines, impeachment 2.0, economic impetus and more.
With consumers largely busy, institutional investors are leading this 10-fold rally from $ 4,000 in March 2020 to new all-time highs above $ 40,000.
A Fidelity report released in June, shortly after unlimited fiscal stimulus was announced, found that more than 35 percent of institutional investors see value in Bitcoin and are far less concerned about price volatility and market manipulation than before.
Massive institutional players such as JPMorgan Chase & Co., Deutsche Bank, Citibank and Guggenheim Partners have publicly spoken out in favor of Bitcoin. Grayscale now owns more than 630,000 Bitcoin (3 percent of total Bitcoin supply), mostly for accredited and institutional investors.
Insurance company MassMutual has invested $ 100 million of its assets in Bitcoin. Legendary investors Paul Tudor Jones and Stan Druckermiller have disclosed personal positions in Bitcoin as a store of value. Publicly traded companies Square and MicroStrategy have placed treasury reserves in Bitcoin, and many more are set to follow.
Regulatory and Infrastructure improvements made this possible.
Even if a publicly traded company wanted to buy $ 500 million worth of bitcoin in 2017, there was no easy way to do it, and storing that bitcoin would be an operations and security nightmare. This is no longer the case. MicroStrategy was able to buy roughly 38,000 bitcoin with minimal slippage, and market participants didn’t notice it.
Banks can now custody Bitcoin, and since 2017 institutional quality Bitcoin custody solutions have been developed by companies such as Coinbase, Gemini, Fidelity, Anchorage and BitGo, among others. Liquidity providers like B2C2, Genesis Trading and Jump Trading as well as OTC desks like Cumberland mirror the order routing and execution services that exist in traditional markets.
Many of these companies are endeavoring to consolidate these services and build a prime brokerage similar to APEX clearing for traditional markets and to capture the increasing institutional demand.
The rise in institutional investors has legitimized Bitcoin for common people. Retail interest is starting to surge, but it’s still nowhere near as high as it was in 2017.
The narrative shift from trading to accumulation coupled with the increasing presence of institutional investors sets this bullish cycle apart significantly from any previous one in Bitcoin history.
Bitcoin is no longer a speculative collector’s item that people bet on in hopes of making money quickly. Instead, it is becoming a real store of value to gold that institutions, businesses, and consumers amassing to protect and grow their wealth over time.
This is a guest post by Abhay Aluri. The opinions expressed are solely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.