[CHAINALYSIS REPORT] Why Bitcoin is Surging – Comparing 2017 vs. 2020 Bull Runs and What the Data Reveals

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Chainalysis, the world’s most reliable and trusted blockchain and crypto analysis company, has released a report that looks into the recent bitcoin surge and what data says about the ongoing bull run.

The report, dated November 19, 2020, admits that we are in the midst of a price surge not seen since the famous bull run of late 2017 and why this run is significantly different from the previous one.

 

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The new report outlines the underlying conditions driving bitcoin price increases now and what the data tells us to help better inform investment and trading decisions.

 

  • Liquid Bitcoin is Only 23%

An analysis of bitcoins held in various wallets shows that illiquid or investor-held bitcoin (wallets that send less than 25% of holdings) currently stands 77% of the circulating supply. Compared to 2017, the amount of liquid bitcon is similar. However, the amount held in illiquid wallets is much higher at 77% (14.8 million bitcoins). These are bitcoins that have not moved from their current addresses in the last 5 years or longer.

 

  • Current Demand is Largely Driven by Institutions

Unlike the 2017 bull run, which saw bitcoin reach an all-time value of $20, 000, was driven by individuals and retail invstors buying their own personal funds, 2020 is the year institutional dollars began flowing into bitcoin. The 2020 bull run appears to be driven by a desire to hedge against macro-economic uncertainty, as data reveals. This is evidenced by high value transfers sent fro exchanges throughout 2020. The fact that individuals behind these large transfers have more money to spend means that they are likely going to keep doing that as quantitative easing increases.

 

  • Crypto-to-Fiat Exchanges are Playing a Big Role

Prior to the 2017 bull run, many exchanges where primarily large institutional investors are located (North America & Europe) were losing bitcoin on net, and became net recipients when prices began to peak. However, this time, its different. The 2020 bull run has seen increased inflows into these exchanges within these jurisdictions further enabling higher crypto-to-fiat trades compared to 2017. As a result, these crypto-to-fiat exchanges are playing a bigger role in the current surge compared to 2017 when crypto-to-crypto exchanges, mostly used by traders for swapping different crypto types, drove the market.

It is clear that investors are looking at bitcoin as a safe haven especially when you compare Ethereum with bitcoin. As more bitcoin becomes illiquid and held in long-term wallets, Ethereum, on the other hand, is becoming more liquid, as it is moved into newer wallets that trade more frequently, largely driven by the Decentralized Finance (DeFi) frenzy.

There is no doubt that the reasons why bitcoin prices are rising make for a good business and use case for the crypto asset.

 

Below are the conclusions drawn from the report:

  • 2020 investors are more savvier and more strategic
  • Bitcoin is getting accumulated for a specific use case rather than speculation
  • Continued effectiveness of bitcoin as a hedge will likely lead to even more mainstream adoption

 

RECOMMENDED READING3 African Countries Among 7 Worldwide Where Bitcoin is at an All-Time High

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