3 Main Factors Driving the Bitcoin Bull Market


November 13, 2020 | AtoZ Markets – Bitcoin (BTC) price rose sharply in two months, hitting a 33-month high. At the time of writing, the flagship cryptocurrency is trading above $16,200.

Price increases began in early September when Bitcoin fell below $10,000 and gained momentum in late October. Bitcoin prices rose 63% in eight weeks to $15,971, the highest level since January 2018.

In 2018 and 2019, Bitcoin often slumped below $10,000 and struggled to recover from the crash after a record high of nearly $20,000 at the end of 2017.

So what exactly triggered the price hike this time? Let’s look at the three main factors that drive the bull market.

1. Increased entry of institutional investors

“In the last eight weeks, various rising companies and hedge funds have entered the crypto assets market with considerable capital,” said Matthew, co-founder and COO of Singapore-based Stack Funds.

Nasdaq-listed company MicroStrategy announced on September 15 that it has invested $425 million worth of Bitcoin in Bitcoin. Three weeks later, payment giant Square also revealed a Bitcoin investment worth $50 million.

In October, the derivatives market was also dominated by bulls, and institutional investors’ long positions on Bitcoin futures listed on the Chicago Mercantile Exchange (CME) reached a record high.

The increased institutional entry has probably put upward pressure on prices. In addition, it is likely to have stimulated widespread market sentiment and encouraged many buyers to enter the market.

As shown by the fact that the number of Bitcoin “whales” -addresses holding at least 1000 bitcoins-was the highest level in four years at the end of October, and the “accumulated addresses” reached a record high. The entry of individual investors has also increased.

Since the spread of the covid-19 pandemic, the Fed’s large-scale government bond purchases, and the prospect of additional economic stimulus measures by the government threaten to depreciate the dollar. As a result, both institutional and individual investors were motivated to invest at least some of the money in Bitcoin.

Further economic stimulus topics have made Bitcoin equal to a safe haven. Bitcoin has many of the properties of gold as a means of storing value, even though it has only existed for a relatively short period of time.

2. Supply shortage

3 Main factors Driving the Bitcoin Bull Market

Bitcoin held by the exchange: Orange (Price: Gray)
Source: Glassnode

 

Large spot buyers, many of whom are institutional investors, have created a lack of liquidity in Bitcoin and put upward pressure on prices.

“Grayscale’s GrayScale Bitcoin Trust, MicroStrategy, and the influx of large spot buyers are starting to scarce Bitcoin supplies,” Dive said.

In addition, individual investors moved Bitcoin from the exchange to their wallet for direct custody (management and storage), further increasing the liquidity shortage on the seller side. Bitcoins stored on crypto exchanges have fallen 9% in the last two months to 2,404,788 Bitcoins, according to Glassnode data.

The decline in Bitcoin holdings on exchanges shows a strong sentiment in the market.

3. Technical analysis


Bitcoin Weekly Chart Source: TradingView

 

Bitcoin’s bullish trend strengthened after surpassing $12,500 in the third week of October.

At the time, many analysts pointed out $12,500 as a level that bulls should clear. This is because Bitcoin fell sharply after reaching around $12,500 in August.

“The true resistance is around $12,500, so nothing has happened until there is a meaningful rise above that level,” said Exo Alpha Chief Investment Officer David Lifchitz.

Indeed, the subsequent rise of over $12,500 seems to have led to stronger chart-driven buying pressure.

Bitcoin closed the third week of October beyond an important hurdle and remained at that level for the next two weeks. Bitcoin hasn’t fallen below its now-supported $12,500.

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