The flood gates began to open. After a tumultuous beginning of the year, institutional investors had finally arrived.
On October 8th, Square announced a $50M investment into bitcoin, stating “we believe that bitcoin has the potential to be a more ubiquitous currency in the future.” Square joined MicroStrategy and others in allocating part of their corporate treasury to bitcoin. On October 21st, PayPal made an official announcement that it was introducing “a way for customers to buy, hold, and sell certain cryptocurrencies within the PayPal wallet.”
Soon after, Bitcoin’s price began to rise. It would keep on rising for most of Q4. As institutions continued to join, the narratives around bitcoin started to shift. In a quickly changing world, bitcoin is increasingly being endorsed as a hedge against inflation and form of digital gold.
Note: Q4 returns calculated from October 1st-December 20th
In November, billionaire investors Bill Miller and Stanley Druckenmiller joined in, publicly stating that they held and recommended bitcoin. Both compared bitcoin to gold, with Miller adding that he thinks “inflation is coming back due to the Federal Reserve gunning the money supply.” A few weeks later a Citibank senior analyst predicted bitcoin could reach over $300K and called it “21st century gold” in a leaked note to institutional clients.
November brought more signs of a growing institutional investor base. Throughout the month, bitcoin price moved upward more during hours that US markets were open than during hours where US markets were closed. This was not the case during bitcoin’s 2017 bull run, which was more retail driven.
The below charts highlight bitcoin’s price during the hours that the New York Stock Exchange was open, shown in green. Hours where the stock market was closed, like nights, weekends, and the Thanksgiving holiday, are left blank (i.e. not highlighted).
Interestingly, while price moved sideways over the first three weekends of the month, the last weekend of November saw significant upward movement. This followed a large drop on the night of Wednesday the 25th and over Thanksgiving, and is potentially related to a large CME bitcoin futures gap to close the month.
Adding to crypto’s growing momentum, Ethereum hit a big milestone on December 1st. After years in the making the first phase of Ethereum 2.0 was successfully launched. Over the upcoming years Ethereum will continue its transition to Ethereum 2.0, which will introduce Proof-of-Stake and allow investors to earn yield by staking their ETH to secure the network. With over $1B already locked in the Ethereum 2.0 deposit contract, Ethereum may start attracting more institutional attention going into 2021.
On December 10th, in another sign of institutional adoption, insurance company MassMutual announced a $100 million purchase of bitcoin. Less than a week later, on December 16th, bitcoin surged past $20,000, three years to the day after it reached its 2017 peak of $19,640.
Over the course of 2020 bitcoin added over $300B to its market cap. The amount of daily active addresses doubled, and the number of addresses holding at least 0.01 BTC grew by over 700k. While adoption grew, bitcoin veterans continued to hold strong. Bitcoin’s velocity dropped by close to 10% on the year, and the amount of supply active within the last 2 years decreased by about 11%.
In many respects, bitcoin is in its strongest position yet closing out 2020. As momentum continues to build, bitcoin is on the verge of reaching unprecedented heights in 2021.