Stanley Druckenmiller (L) and Paul Tudor Jones
CNBC
A flock of new and large investors are collecting bitcoins this year, as the price has more than doubled.
Investors who bought at least 1,000 bitcoins (worth about $ 23 million at Friday’s price) and have an account open for less than a year have generated significant demand since September, according to data firm Chainalysis . The new cohort bought together half a million bitcoins ($ 11.5 billion) in the last three months.
By the time these new investors accelerated their buying range, the price of Bitcoin doubled more than the $ 10,000 level. The new demand has helped drive the rise of the cryptocurrency to an all-time high, according to Philip Gradwell, chief economist at Chainalysis.
“The role of institutional investors is increasingly clear in the data,” Gradwell said in a note to clients Friday. “Demand is being driven by U.S. investors in fiduciary exchanges, with increased demand from institutional buyers.”
The rise in demand from wealthy Wall Street investors marks a sharp shift from Bitcoin’s first preliminary phase three years ago. The 2017 rally was driven by retail investors, many of whom opted for bitcoin and other smaller cryptocurrencies by speculation. Bitcoin became a well-known name when it reached $ 20,000 that year. It crashed shortly afterwards and lost 80% of its value in the following months.
Source: Chainalysis
Bitcoin topped $ 23,000 for the first time this week, bringing its earnings so far to over 200%. The cryptocurrency has regained about a quarter of its value since Friday and is in its best week since May 2019.
The resurgence of prices in 2020 has been partly fueled by well-known Wall Street billionaires who publicly support Bitcoin. Analysts say this gave confidence to conventional investors, on the other hand, skeptics.
Stanley Druckenmiller and Paul Tudor Jones have invested in cryptocurrency and highlighted its potential as a hedge against inflation. Meanwhile, Square, MicroStrategy and Mass Mutual have used their own balance sheets to buy cryptocurrency. PayPal also added the possibility for customers to buy bitcoin, which has opened up the market to millions of new buyers.
“We are seeing institutional capital flow at the fastest pace in the history of our business, and it is being deployed by some of the world’s largest institutions and some of the most famous investors,” said Michael Sonnenshein, CEO of Grayscale Investments . CNBC in a phone interview Friday. Flows to Grayscale’s listed Bitcoin Trust have increased about 6 times more than a year ago, he said.
Chainalysis also noted lower liquidity in the market, with fewer sellers than there were years ago.
Last week 801,000 fewer bitcoins were shipped compared to 2017. Certainly, not all bitcoins that are sent are sold. But Chawellysis’ Gradwell said it is a “good proxy” as there are limited use cases, especially when prices go up. Less availability of bitcoins “would explain the rapid rise in prices this week,” he said.
As bitcoin approached its peak this week, rapper “Megan Thee Stallion” tweeted a bitcoin gift with the Square Cash app, which was retweeted by Square and Twitter CEO Jack Dorsey. The endorsement coincided with the peak price of Bitcoin on Thursday.
“Celebrity supports are usually a problem for the top of the market, so maybe that omen will outweigh the fundamentals I’ve shown in the data,” Gradwell said.