Bitcoin (BTC) has seen a stellar price rally over the past two months, reaching 33-month highs near $ 16,000.
The uptrend started in early September after buyers bought down below $ 10,000, and accelerated in the second half of October.
Last week, prices hit a high of $ 15,971, a level last seen in January 2018. This represents a 63% gain in eight weeks, according to CoinDesk’s Bitcoin price index.
In 2018 and 2019, bitcoin often languished below $ 10,000, struggling to recover from a crash that followed the push in late 2017 to highs near $ 20,000.
So, what is behind the rapid gains of the past few weeks? Here are three of the main factors behind the bull market:
1. Increased institutional participation
“Over the past eight weeks, we’ve seen various notable public companies and hedge funds enter the cryptocurrency market with a significant deployment of capital,” said Matthew Dibb, Co-Founder and COO of Stack Funds , based in Singapore.
On September 15, listed business intelligence firm MicroStrategy (NASDAQ: MSTR) announced the purchase of $ 250 million worth of bitcoin, and three weeks later, payments firm Square (NYSE: SQ) also revealed its investment. in the bitcoin market.
In October, leverage in the derivatives market was also bullish, with institutions holding record long positions in bitcoin futures contracts listed on the Chicago Mercantile Exchange.
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The increased institutional participation probably created upward pressure on prices. In addition, it has boosted the overall sentiment of the market and probably prompted more buyers to join the market.
The number of bitcoin whale entities – groups of addresses owned by a single network participant holding at least 1,000 BTC – hit its highest level in four years at the end of October. Retail participation has also increased, as suggested by the measure of “accumulation addresses” reaching record levels.
Since the coronavirus pandemic hit, expectations of further fiscal stimulus in the United States alongside the Federal Reserve’s ongoing bond buying programs to boost inflation have sparked fears of a dollar selloff and motivated institutions and retailers to invest at least some money in bitcoin.
“Discussions of new stimulus efforts have put bitcoin on the map as a near-safe haven, possessing many of the store-of-value qualities of gold, despite its relatively [brief] existence, ”Dibb said.
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2. Shortage of supply
Large cash buyers, mostly institutions, created a bitcoin liquidity gap, pushing prices up.
“Between the GBTC trust of Grayscale, MicroStrategy, and the influx of other large cash buyers, the supply of bitcoin is starting to look more scarce,” Dibb said. Grayscale is owned by CoinDesk’s parent company, Digital Currency Group.
Additionally, retail investors have taken direct custody of their coins by moving them from the exchanges to their own wallets, which has helped to dry up liquidity on the sell side. The total number of bitcoin held on cryptocurrency exchanges has fallen 9% to 2,404,788 BTC over the past two months, according to data from Glassnode.
The decline in foreign exchange balances reflects a strong sense of ownership in the market.
3. Technical break
Bitcoin’s bullish bias strengthened after the cryptocurrency’s convincing breakout above $ 12,500 in the third week of October.
At the time, many analysts indicated that $ 12,500 was the level to beat for bulls. Indeed, the cryptocurrency had fallen sharply following a rejection of nearly $ 12,500 in August.
“The actual resistance level is around $ 12,500, so until a significant breakout above that level nothing gets done,” David Lifchitz, chief investment officer at ExoAlpha, told CoinDesk on October 20.
Indeed, the eventual breakout above $ 12,500 appears to have sparked more chart-driven buying pressure.
Bitcoin finished the third week of October above the key hurdle and remained in auction for the next two weeks. The support, at $ 12,500, has not been tested since.
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At the time of going to press, bitcoin is changing hands near $ 15,390, which is a 113% gain since the start of the year.
Disclosure: The author holds small positions in bitcoin and litecoin.