Stanley Druckenmiller (L) and Paul Tudor Jones
A flock of new big investors are grabbing bitcoin this year as the price more than doubles.
Investors who bought at least 1,000 bitcoins – worth about $ 23 million at Friday’s price – and who have had an account open for less than a year, drove significant demand since September, according to data firm Chainalysis. Together, the new cohort bought half a million bitcoins, or $ 11.5 billion worth, in the last three months.
In the time these new investors accelerated their buying spree, the price of bitcoin had more than doubled from the $ 10,000 level. The new demand has helped fuel a cryptocurrency rally to a record high, according to Philip Gradwell, chief economist at Chainalysis.
“The role of institutional investors is becoming increasingly clear in the data,” Gradwell said in a note to clients on Friday. “Demand is driven by North American investors on fiat exchanges, with increased demand from institutional buyers.”
The surge in demand from wealthy Wall Street investors marks a sharp turn from the first run of bitcoin three years ago. The 2017 rally was driven by retail investors, many of whom are betting on bitcoin and other smaller cryptocurrencies out of speculation. Bitcoin became a household name when it fetched close to $ 20,000 that year. It struck shortly thereafter, losing 80% of its value in the following months.
Bitcoin crossed $ 23,000 for the first time ever this week, bringing its earnings so far to more than 200%. The cryptocurrency has improved about a quarter of its value since Friday, and is on pace for its best week since May 2019.
The price revival in 2020 has in part been fueled by well-known Wall Street billionaires who publicly support bitcoin. Analysts say it gave confidence to otherwise skeptical mainstream investors.
Stanley Druckenmiller and Paul Tudor Jones have both invested in the 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 ability for clients to buy bitcoin, which has opened the market to millions of new buyers.
“We are seeing institutional capital flow in at the fastest pace in our business history, and it is being used by some of the world’s largest institutions and some of the most famous investors,” said Michael Sonnenshein, managing director Grayscale Investments, CNBC in a phone interview on Friday. Flows to Grayscale’s publicly traded Bitcoin Trust have increased about 6x from a year ago, he said.
Chainalysis also pointed to less liquidity in the market, with fewer vendors than there were years ago.
Last week, bitcoin was sent 801,000 less compared to 2017. To be sure, not all bitcoin that is “sent” is sold. But Chainalysis’ Gradwell said it was a “good substitute” as there are otherwise limited use cases, especially when prices are spiking. The reduced availability of bitcoin “would explain the rapid rise in prices this week,” he said.
As bitcoin approaches its high this week, rapper “Megan Thee Stallion” tweeted bitcoin donations with Square Cash App, which was re-tweeted by Square and Twitter CEO Jack Dorsey. The endorsement coincided with a bitcoin price peak on Thursday.
“Celebrity endorsements have typically been big bells at the top of the market, so this sign may override the fundamentals I’ve shown in the data,” said Gradwell.