The 2020 rally differs markedly from the retail-driven FOMO of 2017.
Although it’s easy to draw parallels between this year’s bull market and the speculative frenzy that drove the 2017 rally, the foundations underpinning Bitcoin are much stronger today than they were just a few years ago.
While there are many metrics that could explain Bitcoin’s resurgence this year, it’s important to start from the very top. Unlike in 2017, investors today are accumulating Bitcoin with a clear purpose. The digital currency’s effectiveness as a hedge against inflation is leading to wider mainstream adoption, especially among savvy investors who understand monetary policy.
Since inception, Bitcoin has been a superior store of value than any other asset. The May 2020 deflationary halving event highlighted Bitcoin’s scarcity to a wider audience than ever before.
As crypto analytics firm Chainanalysis reported last month:
“[…] first-time Bitcoin buyers and buyers looking to unload fiat currency for Bitcoin as a hedge against worrisome macroeconomic trends are responsible for much of the current demand.”
2020 could go down as the year that major institutions flipped the script on Bitcoin — perhaps permanently. Unlike in 2017, when Bitcoin’s surge was mainly driven by retail speculation, the 2020 bull market appears to be guided by the cold, calculating hands of smart money.
Cointelegraph has been reporting for months about Bitcoin’s gradual uptake by institutional investors. Paul Tudor Jones, Stanley Druckenmiller, Grayscale, PayPal, Square, MassMutual, MicroStrategy, Ruffer Investment Company — these are just a few of the corporate and institutional names that have added Bitcoin to their holdings.
Even Jim Cramer, the famed TV personality from CNBC’s Mad Money, bought the recent Bitcoin dip under $18,000.
Such names were absent from the retail-driven euphoria of 2017 when FOMO, or fear of missing out, was the main catalyst behind Bitcoin’s brief spike towards $20,000.
The rise of illiquid wallets
Another striking difference between the 2020 bull market and the one that preceded it in 2017 is the amount of Bitcoin held in so-called illiquid wallets.
Chainanalysis describes illiquid wallets, also called investor-held Bitcoin, as wallets that send less than 25% of BTC they’ve ever received. Using this metric, illiquid wallets currently represent more than three-quarters (77%) of the 14.8 million BTC mined that isn’t characterized as lost. Chainanalysis says this amount “hasn’t moved from its current address in five years or longer.”
The firm explains:
“That leaves a pool of just 3.4 million Bitcoin readily available to buyers as demand increases.”
As the following chart illustrates, the amount of “investor Bitcoin” held has surged dramatically since late 2017 when prices last peaked. In other words, investors are buying and holding BTC as opposed to flipping it for quick profits.
Steady growth of active addresses, wallets holding at least 0.1 BTC
Unlike in 2017, when Bitcoin network activity peaked with the BTC price, the number of unique active addresses has grown steadily for the past two years, according to data provider Glassnode.
What’s more, roughly 19.6 million addresses either sent or received Bitcoin in November, marking the third-highest monthly total ever recorded.
Data from Glassnode also reveal that, by June of this year, a record number of investors were holding at least 0.1 BTC. As Cointelegraph reported, more than 2.75 million addresses have been consistently holding more than this amount since April 2019.