Bitcoin increased by 40% in November and its value has increased by an impressive 165% since the beginning of 2020. With bitcoin entering a bull market, many traders are expecting a quick correction close to its highest point ever, now only 4% away.
Seventh week
In the bulk market of 2017, bitcoin rallies took an average of seven weeks to experience a correction between 30% and 40%. The current rally is in its seventh week. However, many analysts believe that the current market conditions are different from three years ago and that more institutional purchases could lead to a firmer bottom. You can see how aggressive and quick dips are being bought.
Consumers are lagging behind…
There is another big difference, so in 2017 the increase was not caused by institutional parties but by private investors. This led to a wave of registrations at crypto exchanges and exchange offices such as BTC Direct and BLOX. There was also an explosion in search numbers on Google for bitcoin. However, there are early signs that a wave may be imminent.
…but coming!
Data from BTC Direct and BLOX show that three times more new accounts are created every day in November than in previous months. There is also a small increase in the keyword ‚bitcoin‘ on Google, the index figure is now 21. Only the bull run of 2017/2018 (100) and the summer of 2019 (24) achieve higher indices.
Simon Peters, analyst at investment platform eToro, also sees an increase in crypto trade. The exceptional run of bitcoin continues, with a record high of $20,000 now within reach,“ said Peters. On our platform, the average bitcoin trade per day in November is 81% higher than in 2020. At this rate, I wouldn’t be surprised if bitcoin becomes an important topic at Christmas dinner‘.
Bitcoin is scarce
Another factor that seems to contribute to the rapid rise in bitcoin is that every dip is bought aggressively. One reason for this is an increased awareness that there may be a growing shortage of bitcoin and an imminent supply crisis. This story is based on the simple combination of reduced supply after the May halving and huge purchases by large entities such as Square, PayPal and Grayscale.
After the halving of bitcoin in May, the number of newly mined bitcoins per day dropped from 1800 to 900. Although it is difficult to get accurate data, many reports suggest that Square (The Cash App) and PayPal (US customers only) are buying more than 900 bitcoins per day alone.
Fund manager Grayscale is even more aggressive. The Grayscale Bitcoin Trust now has the custody of over 500,000 bitcoins and buys more every day. The fund is worth over $9 billion and represents 2.69% of the available supply and market capitalisation of bitcoin.
Only increase possible
If these three companies carry on like this and collectively buy more than 900 bitcoins a day, the result will be a simple calculation. New sellers will have to appear to meet the demand, if not, the bitcoin price will go up.
This is also stated in Pantera Capital’s latest report: ‚This is where the part of finite supply and inelasticity comes into play: a higher price. Now that is THE story in bitcoin. If other, larger financial institutions follow their example, the supply scarcity will become even more unbalanced. The only way to balance supply and demand is at a higher price‘.