Stanley Druckenmiller (L) and Paul Tudor Jones
CNBC
A herd of new and large investors is earning bitcoin this year because the price is more than double.
Investors who bought at least 1,000 bitcoins – worth about $ 23 million at Friday’s price – and had an account open for less than a year, led to a significant demand in September, according to the data company Chainalysis. The new cohort has bought half a million dollars worth $ 11.5 billion together in the past three months.
As these new investors accelerated their purchases, the price of bitcoin doubled from $ 10,000. The new demand has helped fuel the 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 stock markets, with higher demand from institutional buyers.”
The rise in demand from wealthy Wall Street investors marks a sudden change since the first launch of bitcoin three years ago. The 2017 rally was led by retail investors, many of whom bet on bitcoin and other smaller cryptocurrencies from speculation. Bitcoin became a household name when it first approached $ 20,000 that year. It collapsed shortly after, losing 80% of its value in the following months.
Source: Chainalysis
Bitcoin passed $ 23,000 for the first time this week, bringing its earnings so far to over 200%. The cryptocurrency has recovered about a quarter of its value on Friday and is on pace for the best week of May 2019.
The renaissance of prices in 2020 has been partly fueled by well-known billionaires on Wall Street who publicly support bitcoin. Analysts say this has given confidence to ordinary investors, who are skeptical.
Stanley Druckenmiller and Paul Tudor Jones both invested in cryptocurrency and highlighted their potential to hedge against inflation. Meanwhile, Square, MicroStrategy and Mass Mutual have used their own balance sheets to buy cryptocurrencies. PayPal has also added the ability for customers to buy bitcoin, which has opened the market to millions of new buyers.
“We see that institutional capital is moving at the fastest pace in the history of our business and is being implemented by some of the largest institutions in the world and some of the most reputable investors,” said Michael Sonnenshein, CEO of Grayscale Investments. CNBC in a telephone interview on Friday. Flows to publicly traded Bitcoin Trusts from Grayscale have increased about 6 times from a year ago, he said.
Chainalysis also indicated less liquidity in the market, with fewer sellers than they were years ago.
Last week, there were 801,000 bitcoins sent compared to 2017. To be sure, not all “sent” bitcoins are sold. But Chawellysis’ Gradwell said it was a “good proxy” because there are otherwise limited use cases, especially when prices are rising. The lower availability of bitcoin “would explain the rapid rise in prices this week,” he said.
As bitcoin approached its peak this week, rapper Megan Thee Stallion posted a gift on Twitter with the Square Cash app, which was retweeted by Square and Twitter CEO Jack Dorsey. The approval coincided with the peak of the bitcoin price on Thursday.
“Celebrity recommendations have usually been a problem for the top of the market, so maybe this sign will go beyond the fundamentals we’ve shown in the data,” Gradwell said.