In brief

  • Bitcoin hit $34k on a bull run that has seen it more than triple in value
  • There are a few reasons why.
  • Is Bitcoin crossing over into the mainstream?

Bitcoin smashed all expectations today. It accelerated past $30k in the early hours of January 2nd to knock past $31,000 and $32,000 this afternoon, daring to hit $33,000 by the early evening. Then shortly after, it passed $34,000 to hit its current all-time high, $34,608.

Analysts Decrypt spoke to attribute the boom to three things: retail investors, institutional investors balancing the books, and a single whale’s trade that set an army of algo-traders chomping in search of a profit. 

Retail Therapy

“We're starting to see some retail interest in bitcoin now, at last,” Eric Wall, CIO of crypto fund Arcane Assets, told Decrypt. Search volume for Bitcoin is through the roof, according to Google Trends data—”It's the first time since the last $20k peak that we've seen anything like this.” 

Wall, like other experts Decrypt spoke to, told us that retail investors are partly responsible for driving the weekend surge.

Nimrod Lehavi, CEO and founder of crypto payments company Simplex, also observed “surging demand among retail investors.” 

But retail investors only explain part of Bitcoin’s rise this weekend, he said. Lehavi’s retail customers used to spend 90% of their money on Bitcoin. This weekend, that’s down to 50%; investors are increasingly interested in Tether, the US dollar-pegged stablecoin, and ETH. 

Traders are already “looking for ‘the next BTC’,” said Lehavi. 

Institutional Money

Institutional investors are the tanks that thrust Bitcoin’s price upward in the last quarter of 2020. 

And they’ve hardly gone away. The hedge fund of former White House Communications Director Anthony Scaramucci is set to open a huge Bitcoin Fund on Monday, for instance, and MicroStrategy CEO Michael Saylor has no plans to buy less Bitcoin. 

Demand from institutional investors helped surge Bitcoin’s price this weekend, according to analysts Decrypt spoke to.

Joshua Ho, founder and partner of Singaporean trading firm QCP Capital, attributes this weekend’s rise to “continuous institutional interest from all sides.” 

His logic is that institutional investors are so eager to buy up Bitcoin that they’re driving up the price.

Wall said the price hike could be the result of institutional investors withdrawing their funds to long-term storage vaults, reducing the number of Bitcoin available for retail traders. 

A recent report from Glassnode concluded that just 22% of Bitcoin is left for traders, since institutional investors have already snapped up most of the available Bitcoin, driving the demand up and further fuelling the bull run. 

Still, why, of all things, would the price rise on a Saturday, when most institutional investors would surely prefer ski trips and weekend city breaks to crypto trading? 

Pierce Crosby, general manager of TradingView, said that volume spikes at the turn of the year are down to cash-heavy treasuries and asset managers rebalancing their books for 2021.

“With some deciding to allocate even 1% into crypto, there will be a large imbalance in buyers versus sellers, near term,” he said. 

Algo-Trader Riot

But there’s also something else afoot. 

At the weekend, retail investors and algo-traders run amok; when Monday comes, institutional investors set the market straight. “Just a question of when big sellers come in again,” said Ho. 

Ho said that a sudden withdrawal of $1.15 billion from a Coinbase Pro wallet earlier today could have triggered trading bots to buy Bitcoin. Trading bots quickly place trades when someone moves a large amount of Bitcoin to take advantage (what they perceive to be) a rising market. 

The nature of the purchase is unknown. “The large outflow probably indicates a large buy went through that hasn’t been announced yet,” said Ho, while Wall said it could be an exchange shuffling around their funds between internal wallets. 

Either way, it riled the bots and pumped the market.

What next? 

Crosby expects the price to keep jumping around since weekend volatility is historically much higher than during the week. “This weekend is no different,” he said. 

A correction could be in order. 

But how large will the correction be, should it occur? Wall told Decrypt, “I wouldn't start to get scared just yet, this still looks to me like it has a lot further to go. Another 2x from here in the first and second quarter is entirely possible.”

Disclaimer

The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.