Large buyers new to cryptocurrencies look like behind Bitcoin's file rally

Stanley Printmiller (L) and Paul Tudor Jones

CNBC

A herd of new, big investors are collecting Bitcoin this year as the price more than doubles.

Investors who bought at least 1,000 bitcoins – valued at around $ 23 million at Friday's price – and opened an account for less than a year have generated significant demand since September, according to data firm Chainalysis. The new cohort has bought a total of half a million bitcoins, or $ 11.5 billion in value, in the past three months.

During the time these new investors accelerated their buying frenzy, Bitcoin price more than doubled from $ 10,000. According to Philip Gradwell, chief economist at Chainalysis, the new demand has helped drive the cryptocurrency rally to an all-time high.

"The role of institutional investors is becoming clearer in the data," Gradwell said in a statement to customers on Friday. "Demand is being driven by North American investors on fiat exchanges, with demand from institutional buyers increasing."

The surge in demand from wealthy Wall Street investors marks a sharp turn since Bitcoin's first attempt three years ago. The 2017 rally was driven by private investors, many of whom bet on Bitcoin and other smaller cryptocurrencies out of speculation. Bitcoin became a household name when it first approached $ 20,000 that year. It soon crashed and lost 80% of its value in the months that followed.

Source: chain analysis

Bitcoin topped $ 23,000 for the first time this week, increasing its profits to over 200% so far. The cryptocurrency has regained around a quarter of its value since Friday and is on the way to its best week since May 2019.

The 2020 price rally has been fueled in part by well-known Wall Street billionaires who publicly support Bitcoin. Analysts say this gave confidence to otherwise skeptical mainstream investors.

Stanley Druckermiller 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 to buy Bitcoin for customers, which opened the market to millions of new buyers.

"We're seeing institutional capital flowing at the fastest pace in our business history and being used by some of the world's largest institutions and some of the world's best-known investors," said Michael Sonnenshein, managing director of Grayscale Investments CNBC in a telephone interview Friday. Inflows into Grayscale's publicly traded Bitcoin Trust have increased about six-fold from last year, he said.

The chain analysis also indicated lower liquidity in the market, with fewer sellers than years ago.

Last week, 801,000 fewer bitcoin were sent compared to 2017. However, not all Bitcoin that is "sent" is "sent". But Chainalysis & # 39; Gradwell said it was a "good proxy" as it has limited use cases otherwise, especially when prices are rising. Lower availability of Bitcoin "would explain the rapid rise in prices this week," he said.

As Bitcoin neared its peak this week, rapper "Megan Thee Stallion" tweeted a Bitcoin giveaway with the Square Cash app retweeted by Square and Twitter CEO Jack Dorsey. The confirmation coincided with the peak in Bitcoin price on Thursday.

"Celebrity referrals have usually been a landmark for the top of the market. Perhaps that omen will overcome the fundamentals I showed in the data," Gradwell said.

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