2021 is preparing to be an important year for Bitcoin as price plummets toward $ 40,000 – more than double its all time high in 2017. As HODLers rejoice and older people are left in disbelief, it is note that much has changed in the world since 2017, making this bull run infinitely different from the previous one.
Global pandemic and political honor aside, many other things have changed in the past few years, even in Bitcoin’s microcosm. In short:
- Bitcoin, not shitcoins
- Accumulate, not trade
- Organizations, not consumers
Bitcoin, Not Shitcoins
In 2017, bitcoin was like a gateway drug for all of crypto. People did not necessarily look at bitcoin as a long-term investment. They used bitcoin to trade altcoins and get into ICOs – fortune gambling in hopes of getting rich rich.
2017 was the first time the mainstream public had any kind of exposure to crypto assets and when it happened, it was like the Wild West. The regulation was almost zero and anyone, anywhere with some money, could pick up a ticket and list it on an exchange. Consumer protections were non-existent and suddenly, everyone was an expert at evaluating “early-stage, blockchain-based investments.”
This led to the ICO craving where everyone from your Uber driver to experienced Silicon Valley investors was blinded by the hype and burned on baseless investments. To my girlfriend, this is likely how most nocoiners today remember bitcoin and crypto. This New York Times The epitome of 2017 crypto-mania is an article:
Much of the hype and money to be made in 2017 was outside of bitcoin, so capital flowed from fiat to bitcoin and then to almost every other cryptocurrency. From there, he basically got shit done, as the early ticket creators / investors took everyone’s money by dumping their luggage. (A reminder: Satoshi has never sold any bitcoin.) In fact, within the first half of 2018, over 86 percent of all ICOs listed in 2017 had fallen below their initial listing price, and their founders are likely to be in prison or enjoying their poor wealth on a beach in remote ones. island paradise.
This time, things are different. Money flowing from fiat to bitcoin stays there. Bitcoin market dominance was at an all-time low during peak crypto mania in 2017 and now, it is almost double what it was then.
Altcoin volumes are relatively low, especially among retail investors. The people who double with altcoins, specifically ether, are those who are experienced, not newcomers.
Most crypto trading activity takes place at DeFi on the Ethereum blockchain (devolved whale-dominated exchanges that take experience and technical understanding to use), and in derivatives markets (CME / Bakkt futures and options for institutional players, and offshore derivatives swaps such as BitMEX).
Bitcoin is no longer used for trading or as a way to move capital to other crypto assets. Instead, it is accumulated for the long term.
Accumulate, Not Trading
In the last two years, over $ 30 billion dollars worth of bitcoin has been accumulated for the long term. There are a total of 2.814 million bitcoin in accumulation addresses right now – that’s 15.16 percent of all bitcoin in circulation.
62.31 percent of all bitcoin in circulation has not been moved in over a year, and less than 15 percent of it is actively traded on exchanges. This bit of bitcoin has not been HODLed since before 2017. As you can see, this number plummeted during the bull era when trading altcoins / ICO investing was popular:
People don’t trade bitcoin, they accumulate more and more of it over time and hold it in the long run (aka, “stacking sats”). This is evident not only through the raw data of chain and exchange flow, but also through consumer behavior.
People are average dollar cost (DCAing), buy the dip and get bitcoin-back rewards. Consumer Bitcoin products see this demand, and build for it:
- DCA Cash, Rive and Swan App: Buy x bitcoin every break
- Ryze Accumulate: Buy the dip automatically and accumulate more bitcoin than through DCAing
- Lose & Fold: Get bitcoin back on everyday purchases
Why is this transition happening from Bitcoin trading to accumulation over time?
There are two equally important explanations for this change:
- The COVID-induced Macroeconomic Environment
Central banks print unlimited amounts of money and interest rates are near or below zero. This inevitably leads to inflation, so capital flows into inflation hedges such as bitcoin, gold and real estate. Bonds are worthless. The fiat currency loses value on a daily basis. And we have already seen two currencies collapse in the last year (Turkey and Lebanon). People hedge the current financial system as well as fiat inflation by accumulating bitcoin.
2. Anthropological and Monetary Theory: The Evolution of Bitcoin
All money adopted organically follows the path of evolution: collectable, a store of value, medium of exchangee and, finally, reserve unit / asset.
Like gold, seashells and beads, bitcoin started out as collectible. Its scarcity, the inexplicable cost of creation and the price that someone else was willing to pay for are the things that gave it value to the average person.
Therefore, it was widely traded between 2016 and 2018 as a collectible / speculative commodity, following the same behavioral economics patterns as baseball cards, oil belly and pork futures.
Now, bitcoin is evolving into a store of value – something that will retain its purchasing power, retaining and growing wealth over time. Precious metals, interest assets, productive land, etc. have been traditional stores of value.
Bitcoin joins these ranks as consumers, public companies and, most importantly, institutional investors all buy bitcoin as a store of value in an inflationary environment.
Organizations, Not Retail
Retail investors leading the 2017 bull run – Everyday folks trying to get into bitcoin and make money. Most discerning investors thought it was a scam, with the exception of some notorious hardships like Chamath Palihapitiya and the Winklevoss Twins.
This time, everyday consumers are not paying as much attention. Part of that is because all individuals have worn out the dumpster fire that was 2020, and people are not worried about bitcoin right now. Part of it is the focus of media coverage on pressing issues like COVID-19 vaccines, ambush 2.0, economic stimulus and more.
With consumers largely occupied, institutional investors are leading this $ 4,000 10x rally in March 2020 to new highlights always after $ 40,000.
A Loyalty report from June, shortly after announcing an unlimited fiscal stimulus, found that more than 35 percent of institutional investors see value in bitcoin, and are far less concerned about price volatility and market manipulation than they were of the front.
Massive institutional players including JPMorgan Chase & Co., Deutsche Bank, Citibank and Guggenheim Partners have come out publicly to support bitcoin. Grayscale now owns more than 630,000 bitcoin (3 percent of total bitcoin supply), mostly on behalf of accredited and institutional investors.
The insurance company MassMutual placed $ 100 million of its assets in bitcoin. Legendary investors Paul Tudor Jones and Stan Druckenmiller have revealed personal positions in bitcoin as a store of value. Publicly traded companies Square and MicroStrategy have placed treasury funds in Bitcoin, and many more will follow.
Regulation a infrastructure improvements made this possible.
In 2017, even if a public company wanted to buy $ 500 million worth of bitcoin, there was no easy way to do it, and storing bitcoin would be an operational and security nightmare. This is no longer the case. MicroStrategy managed to buy about 38,000 bitcoin without much slippage and market participants did not notice.
Banks can now hold bitcoin, and institutional-grade bitcoin custody solutions have been built since 2017 by companies like Coinbase, Gemini, Fidelity, Anchorage and BitGo, among others. Liquidity providers like B2C2, Genesis Trading and Jump Trading, as well as OTC desks like Cumberland, all reflect the order routing and execution services that exist in traditional markets.
Many of these companies are racing to consolidate these services and build a prime brokerage similar to APEX Clearing for traditional markets and to capture growing institutional demand.
The rise of institutional investors has legalized bitcoin for everyday people. Retail interest is starting to pick up, but it’s nowhere near where it was in 2017.
The narrative shift from trading to accumulation, coupled with the growing presence of institutional investors, makes this bullish cycle very different from any previous ones in bitcoin’s history.
Bitcoin is no longer a speculative collectable that people gamble on in hopes of making a quick buck – instead, it becomes a true store of alternative value to gold that organizations, corporations and consumers accumulate to protect and grow their wealth over time.
This is a guest post by Abhay Aluri. The views expressed are entirely of their own opinion and do not necessarily reflect the views of BTC Inc or Bitcoin Magazine.