Stanley Druckenmiller (L) and Paul Tudor Jones
CNBC
A flock of new, big investors are scooping up 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 had an account open for less than a year have generated significant demand since September, according to data company Chainalysis. The new cohort bought half a million bitcoins, or $ 11.5 billion, over the past three months.
As these new investors accelerated their buying habits, the price of bitcoin has more than doubled from the USD 10,000 level. According to Philip Gradwell, chief economist at Chainalysis, the new demand has helped the cryptocurrency’s rally hit an all-time high.
“The role of institutional investors is increasingly evident in the data,” Gradwell said in a note to clients Friday. “Demand is driven by North American investors on fiat exchanges, with greater demand from institutional buyers.”
The surge in demand from wealthy Wall Street investors marks a sharp turnaround from bitcoin’s first run 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 crashed shortly afterwards and lost 80% of its value in the following months.
Source: Chainalysis
Bitcoin surpassed USD 23,000 for the first time ever this week, bringing gains to over 200% since the beginning of the year. The cryptocurrency has recovered about a quarter of its value since Friday and is on track for its best week since May 2019.
The price resurgence in 2020 has been fueled in part by well-known Wall Street billionaires who publicly support bitcoin. Analysts say this instilled confidence in 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 balances to buy cryptocurrency. PayPal has also added the ability for customers to buy bitcoin, opening the market to millions of new buyers.
“We see institutional capital pouring in at the fastest pace in our company’s history, and it is being leveraged by some of the world’s largest institutions and some of the most famous investors,” said Michael Sonnenshein, managing director at Grayscale Investments. CNBC in a telephone interview Friday. Flow to the publicly traded Bitcoin Trust in Grayscale has increased about 6x from a year ago, he said.
Chainalysis also pointed to less liquidity in the market, with fewer sellers than years ago.
Last week, 801,000 less bitcoins were shipped than in 2017. Certainly, not all bitcoin that is “shipped” is sold. But Chainalysis’ Gradwell said it’s a “good proxy” as there are otherwise limited uses, especially when prices are soaring. Less availability of bitcoin “would explain the rapid price increase this week,” he said.
As bitcoin neared its peak this week, rapper “Megan Thee Stallion” tweeted a bitcoin giveaway with Square Cash App, which was retweeted by Square and Twitter CEO Jack Dorsey. The approval coincided with the bitcoin price spike Thursday.
“Celebrity recommendations are typically a bell to the top of the market, so maybe this omen will omit the fundamental principles I’ve shown in the data,” said Gradwell.