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What is the difference between Bitcoin's big bull market and 2017? What the data say

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Why is Bitcoin making a comeback now? see what the data says

Original title: "What is the difference between Bitcoin's bull market and 2017?" See what the data says"

Original source: Babbitt

As of November 19, 2020 As of this writing, Bitcoin is hovering around $18,000, which means one thing: We are in the midst of a price surge not seen since the famous bull run in late 2017, when Bitcoin hit around $20,000 .

However, while it is tempting to compare today with 2017, the current price increases differ in a few key ways. Below, we outline the underlying conditions driving Bitcoin’s price today and explain several key differences compared to the situation in 2017.

Why is Bitcoin so popular now? See what the data says

The price of bitcoin is rising because demand for bitcoin is increasing at a time when there are relatively few bitcoins available for purchase Increase. While the total supply of bitcoins grows daily as more are mined, the actual amount available for purchase depends on whether holders are willing to sell or trade. According to Chainalysis analysis, we quantify this amount by tracking the amount of bitcoin held in wallets, if these wallets send less than 25% of the bitcoin they ever received, we call it illiquid or investor holding Bitcoins held in the wallet, on the contrary, the number of Bitcoins held in the wallet is less than the number of Bitcoins sent, and that is what we call liquidity or Bitcoins held by traders.

The chart below shows how the volume-to-price relationship of bitcoins in each category has changed since January 2017, capturing the current price rise and 2017 Market dynamics of annual price increases.

Currently, the amount of liquid Bitcoin is similar to the amount during the 2017 bull run.

But the amount held in illiquid wallets is much higher, currently accounting for 77% of the 14.8 million bitcoins mined (not classified as lost) , which means it has not been moved from its current address for five years or more. As demand increases, there are only 3.4 million bitcoins in reserve available to buyers.

Demand is increasing, as evidenced by exchange inflows and exchange trading intensity. The transaction intensity metric measures the number of transactions per spot bitcoin deposited to an exchange before leaving the exchange platform, and can be a good proxy for bitcoin demand on a particular exchange. The indicator is currently 38% above its 180-day average.

How is the current Bitcoin rally different from 2017?

The key difference is who buys Bitcoin and why. In 2017, most demand came from individuals, retail investors, buying with their own personal funds, many of whom had varying degrees of experience and knowledge in cryptocurrencies. As previously reported, 2020 is the year that institutional money starts flowing into Bitcoin.

Including high-profile investors like hedge fund manager Paul Dud Jones, who compared buying Bitcoin to an early investment in Apple or Google, and Companies like Square, which invested $50 million or 1% of total assets in Bitcoin, etc., mainstream companies and financial institutions are switching to Bitcoin.

Institutional shifts to cryptocurrencies appear to be driven by a desire to hedge against macroeconomic uncertainty, which of course has not diminished this year. Jones himself put it well when he said, “Back in March and April, given the monetary policy the Fed was doing, the incredible quantitative easing they were doing, and what other central banks were doing, it was changing. It's pretty obvious. It's unprecedented... people have to start thinking about how to defend against inflation."

The data also bears out this institutional investment story. On the one hand, we saw an increase in high-value transfers sent from exchanges in 2020.

The number of exchanges sending transfers worth $1 million or more in 2020 increased by 19%, while the price of Bitcoin has surpassed 10,000 compared to 2017 Dollar. This suggests that the individuals making these transfers have more money to spend, and as we expected, larger investors are getting involved.

Compared to 2017, when more deal activity in Asia drove the market growth, during this surge we also saw a significant amount of capital inflows from It mainly serves exchanges in North America.

North American exchanges were net losers of Bitcoin early in the 2017 bull market, and became net receivers as prices began to peak. But this time around, North American exchanges have been in the green, with inflows rising to higher levels than during the past few months of the 2017 run.

This is what we would like to see as the institutional investors driving the current surge (mainly in North America and Europe) are for ease of use and regulatory reasons , are more likely to buy bitcoin on these exchanges.

Similarly, we also saw a significant increase in net inflows to exchanges compared to 2017, allowing crypto-to-fiat (C2F) trading.

C2F exchanges have played a bigger role in this surge than in 2017, when it was mostly traders who traded many different types of cryptocurrencies Crypto-to-crypto (C2C) exchanges drive more of the market. This, combined with the accumulation of bitcoin in long-held investor wallets, suggests that first-time bitcoin buyers and those looking to exchange fiat currencies for bitcoin as a hedge against macroeconomic trends are largely responsible for this demand.

When we compare Bitcoin's usage this year with Ethereum, investors' perception of Bitcoin as a safe-haven asset becomes clearer. Also, more bitcoins are becoming illiquid than ever before as they go into wallets that are sending out far fewer bitcoins than coming in, i.e. these bitcoins are being treated as long-term investments to hold. Ethereum, on the other hand, is becoming more liquid, flowing into wallets that are not only actively transacting but also relatively new.

The chart above shows that since mid-March, more than 8 million ETH has flowed into liquid wallets in less than a month. This represents a tectonic change in the way ethereum is used, as ethereum has never been moved so frequently to new wallets with high transaction volumes. DeFi is fueling this new use case as users send ETH into DeFi protocols where Ether can be traded for various assets in pursuit of yield. This difference in usage didn’t exist in 2017 — when investors seemed to buy different cryptocurrencies more indiscriminately amidst the hype as prices rose. The differentiated development of Bitcoin and Ethereum use cases in 2020 points to a more mature market, which one can expect given the influx of institutional investors driving the current surge in Bitcoin prices.

This is good news for cryptocurrencies

While we don’t know if the price will continue to rise, the current surge in Bitcoin bodes well for the cryptocurrency — not just because of the price, but because of the reason. Comparing this bull market to the one in 2017 shows that investors have become savvier and more strategic, buying Bitcoin to satisfy a specific use case rather than speculate on a new hot asset. If Bitcoin can continue to be an effective hedge against macroeconomic trends, we believe that more and more institutional investors will put money into the asset, leading to more mainstream adoption.