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Chainalysis: Institutional Money, Massive Demand, Fueling Bitcoin Price

Chainalysis has released a fresh research report on November 20, 2020, detailing the possible reasons behind the current bitcoin (BTC) bull run and why this year’s price surge is quite different and more significant.

Bitcoin Demand Exceeds Supply

After the 2018 bloodbath that crashed bitcoin price and other cryptocurrencies, reducing their combined market capitalization to a mere $190 billion, it appears the good times are here again for bitcoiners as the price of the flagship digital currency is aiming for the moon once more.

In the latest development, Chainalysis, a leading blockchain analytics firm providing critical crypto-focused data to governments, exchanges and financial institutions, has released a research report that tries to explain the reason behind the current bull market and why it is much different from that of 2017 when the price of bitcoin (BTC) hit 20k for the first time in its history.

Per the firm, the current demand for the orange coin from both retail and institutional investors far exceeds supply, despite more BTC being mined every day. Chainalysis says this is due to the fact that a large chunk of the BTC in circulation are currently “illiquid,” as they are held by investors who may not be interested in selling them off just yet.

Chainalysis wrote:

“Presently, the amount of liquid BTC (tradable coins) is similar to what it was in 2017. But the amount held in illiquid wallets is much higher, currently representing 77 percent of the 14.8 million BTC mined that is not categorized as lost, meaning it hasn’t moved from its current address in five years or longer. That leaves a pool of just 3.4 million bitcoin readily available to buyers as demand increases.”

Institutional Investors Fueling BTC Price Surge 

Interestingly, the report also notes that one of the key differences between this bull market and that of 2017 is that institutional investors are leading the charge this time, unlike the last time when FOMO made various inexperienced retail investors buy bitcoin with their personal funds.

As reported  as at October 2020, public firms held a combined $6.75 billion worth of bitcoin in their portfolios and Chainalysis says that number is expected to continue rising, as more and more investors now see bitcoin as the fastest horse to hedge against the great monetary inflation, just like Paul Tudor Jones.

Also, the report reveals that crypto exchanges with fiat on and offramp are playing an active role in this current bull run as they have now made it easier for people to easily buy bitcoin with their local fiat currencies and vice versa.

“Crypto-to-fiat (C2F) exchanges are playing a bigger role in this surge than in 2017, when crypto-to-crypto (C2C) exchanges, used mostly by traders swapping many different types of crypto, drove more of the market. This, coupled with the recent accumulation of BTC by institutional investors, suggests that first-time bitcoin buyers and buyers looking to unload fiat currency for BTC as a hedge against worrisome macroeconomic trends are responsible for much of the current demand.”

At press time the price of bitcoin is hovering around the $18,00 price region, with a market cap of $337.39 billion.


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