Grayscale raked in close to $200 million in 2019 Q4 bitcoin investments. That may explain why the cryptocurrency bottomed out in December.
Bitcoin recorded another fresh 2020 high Friday as it climbed to $9,000.
There are different theories as to why the number one cryptocurrency suddenly came back to life. Just over a week ago, bitcoin rallied along with gold and oil after geopolitical risks in the Middle East escalated. Some analysts claim that speculators are already positioning for the May 2020 halving. Others claim that the loose monetary policies of central banks is driving investors to take on riskier assets.
While these theories have their own merit, new information tells me that institutional money may be powering bitcoin’s ascent.
In the fourth-quarter of 2019, the top cryptocurrency struggled to keep its head above water. From a high of $10,350 in October, it nosedived to $6,425 in December. At the time, the atmosphere was so pessimistic that calls for a drop to $5,000 or lower were dime a dozen.
At the same time, however, Grayscale was raking in institutional money. Last year, the Grayscale Bitcoin Trust drove demand as institutions invested $471.4 million. Nearly 200 million were raised in 2019.
This new information tells me that institutional investors helped carve the bitcoin bottom in December. It is no coincidence that the orange coin bottomed out just as institutional money came pouring in.
$200 million is a lot of money for an asset class with a market cap of about $162 billion. The impact of institutional money is magnified if you consider that more than half of BTCs in circulation have not moved in a year. Only $50 billion worth of BTCs have been changing hands over the past 12 months.
The chart shows that 64% of the over 18.04 million BTCs in circulation are dormant. Only 6.46 million BTCs are being used for trading or payments. These numbers indicate that the cryptocurrency is bound to soar if $200 million of new money enters the market.
While $200 million may be enough to carve a bottom, it’s not sufficient to push bitcoin to greater heights. Should the current bull rally fail to entice new investments, the coin will likely struggle to maintain its momentum. What’s even worse is that institutions might cash out just as new money from hyped retail traders enter the market.
If that happens, we might see bitcoin capitulate to $5,000 as trapped retail money rush to exit the cryptocurrency.
Disclaimer: The above should not be considered trading advice from CCN. The writer owns bitcoin and other cryptocurrencies. He holds investment positions in the coins but does not engage in short-term or day-trading.
This article was edited by Sam Bourgi.
Last modified: January 22, 2020 11:38 PM UTC