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Bitcoin (BTC) has experienced a stellar price increase over the past two months, hitting 33-month highs near $ 16,000.
The bullish trend began in early September after buyers bought a downside 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. That’s a 63% price increase 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 surge in late 2017 to record highs near $ 20,000.
So what’s behind the rapid gains of the past few weeks? Here are three of the main factors driving the bull market:
1. Greater institutional participation
“Over the past eight weeks, we have seen several major public companies and hedge funds enter the cryptocurrency market with significant capital outlay,” said Matthew Dibb, co-founder and COO of Singapore-based Stack Funds.
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 market bitcoin.
In October, leverage in the derivatives market was also skewed to the upside, with institutions holding record long positions in bitcoin futures listed on the Chicago Mercantile Exchange.
Also Read: Institutions Take Record-Breaking Bullish Bets in Bitcoin Futures, Shaking Off Exchange Missteps
The increased institutional participation has likely created upward pressure on prices. It also encouraged broader market sentiment and likely prompted more buyers to enter the market.
The number of bitcoin whale entities – clusters of addresses held by a single network participant holding at least 1,000 BTC – rose to a four-year high in late October. Retail participation also increased, as suggested by the “accumulation addresses” metric which hit record highs.
Since the coronavirus pandemic hit, expectations of further U.S. fiscal stimulus coupled with the Federal Reserve’s rising inflation bond buying programs have triggered fears of a dollar sell-off and motivated both institutions and retailers. to invest at least some money in bitcoins.
“Talks of further stimulus efforts have put bitcoin on the map as a near-safe haven, possessing many of gold’s store-of-value qualities, despite its [brief] existence, “Dibb said.
Also read: Growing global stocks of negative-yielding debt are good for Bitcoin, analysts say
2. Supply crunch
Large spot buyers, mostly institutions, have created a liquidity shortage of bitcoin, putting upward pressure on prices.
“Between the GBTC confidence of Grayscale, MicroStrategy and the influx of other large spot buyers, bitcoin supply is starting to look scarcer,” Dibb said. Grayscale is owned by CoinDesk’s parent company, Digital Currency Group.
Additionally, retail investors have directly taken custody of their coins by moving them from exchanges to their wallets, increasing liquidity drain on the sales side. The total number of bitcoins held in cryptocurrency exchanges dropped 9% to 2,404,788 BTC in the past two months, according to data from Glassnode.
The decline in currency balances is indicative of strong holding sentiment in the market.
3. Technical analysis
Bitcoin’s bullish trend strengthened following the convincing breakout of the cryptocurrency above $ 12,500 in the third week of October.
Back then, many analysts had indicated $ 12,500 as the bulls’ level to beat. This is because the cryptocurrency had fallen sharply following a rejection close to $ 12,500 in August.
“The real resistance level is around $ 12,500, so until a significant breakout above that level, nothing is done,” David Lifchitz, chief investment officer at ExoAlpha, told CoinDesk on Oct. 20.
Indeed, the eventual break above $ 12,500 appears to have caused more chart-led buying pressure.
Bitcoin closed the third week of October above the key hurdle and continued bidding over the next two weeks. Now the support, at $ 12,500, hasn’t been tested since.
Also Read: Billionaire Hedge Fund Investor Druckenmiller Says He Owns Bitcoin In CNBC Interview
As of press time, bitcoin is changing hands close to $ 15,390, representing a 113% gain from the start of the year.
Disclosure: The author holds small positions in bitcoin and litecoin.
