Crypto 101

Why did Bitcoin Price Went Ballistic?

Bitcoin smashed all expectations recently.

It boosted past $30K early on January 2 to break past $31,000 and $32,000 this afternoon, attempting to hit $33,000 by early evening. Then, it passed $34,000 to hit its recent all-time high, $34,608.

Eric Wall, the CIO of Arcane Assets said, “We’re starting to see some retail interest in bitcoin now, at last.” and Google Trends data shows that search volume for Bitcoin is high –” It’s the first time since the last $20k peak that we’ve seen anything like this.”

Wall says that retail investors are responsible for driving the weekend surge.

Simplex‘s CEO and founder, Nimrod Lehavi, also observed “surging demand among retail investors.”

But retail investors explain a part of Bitcoin’s rise this past weekend. Lehavi’s retail customers used to spend 90% of their money on Bitcoin. This weekend, it was down to 50%; investors are now interested in Tether and ETH.

Traders are now “looking for ‘the next BTC’,” said Lehavi.

Institutional investors are the ones that boosted Bitcoin’s price upward in the last quarter of 2020.

And they haven’t gotten away. The hedge fund of former White House Communications Director Anthony Scaramucci is about to open a large Bitcoin Fund recently. MicroStrategy CEO Michael Saylor has no plans to stop buying bitcoin.

The founder and partner of Singaporean trading firm QCP Capital, Joshua Ho, credits this weekend’s rise to “continuous institutional interest from all sides.”

His thinking is that institutional investors are very eager to buy Bitcoin and drive the price up.

Wall also stated that the price hike could result from institutional investors getting their funds to long-term storage vaults, decreasing the number of Bitcoin accessible for retail traders.

A report from Glassnode concluded that only 22% of Bitcoin is left for traders because institutional investors have snapped up mostly the available Bitcoin, surging the demand and sustaining the bull run. The general manager of Trading view, Pierce Crosby, said that volume spikes at the turn of the year are down to cash-heavy treasuries and asset managers balancing their books for 2021.

“With some deciding to allocate even 1% into crypto, there will be a large imbalance in buyers versus sellers, near term,” he stated.

By the weekend, retail investors and algo-traders went berserk; when Monday comes, institutional investors have set the market straight. “Just a question of when big sellers come in again,” Ho said.

He continued that a sudden withdrawal of $1.15B from a Coinbase Pro wallet could have triggered trading bots to buy Bitcoin. Trading bots hastily place trades when someone moves a large amount of Bitcoin to take advantage of a surging market.

The purchase’s nature is unknown. “The large outflow probably indicates a large buy went through that hasn’t been announced yet,” Ho said, while Wall stated that it could be an exchange shuffling around their funds between internal wallets.

What’s next? Crosby predicts the price to keep jumping around since weekend volatility is much higher than the weekdays. “This weekend is no different,” he said. A correction is on the way.

Regarding how large will the correction be, or should it occur? Wall said, “I wouldn’t start to get scared just yet, this still looks to me like it has a lot further to go. Another 2x from here in the first and second quarter is entirely possible.”

Leave a Comment

Leave a Reply