Victor Argonov, senior analyst at EXANTE compares Bitcoin‘s rally in 2019 to 2020-2021
When the crypto winter ended in April 2019 and the rally began, many were confident that Bitcoin (BTC) would break its record from 2017. But after the rapid growth in April-May, the rally slowed down. In the summer, BTC reached a multi-month record of $13,000 (it had risen by 4 times since the beginning of the year), after which it began to fall in price, having rolled back to $7,000 (2 times) by the end of the year.
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The current rally started in October with levels around $10,000. In less than six months, bitcoin has risen in price by 6 times, but the main growth fell in November-February, and since March the positive trend has weakened. In February, BTC exceeded $58,000, and slightly exceeding this in March when it reached $61,300. However, in April it has failed to set new records yet. Will the 2019 scenario repeat itself in 2021, when, despite the general optimism, growth ended earlier than expected and was replaced by a double drawdown (in our case, say, up to $30,000).
However, despite the similarity in the dynamics of quotations, there are fundamental differences between the rally 2019 and the rally 2020-2021, which are unlikely to allow the current rally to end so abruptly.
The First Factor: Participation Of Institutional Investors
Institutions have shown interest in BTC since 2018, when specialised exchanges for deliverable bitcoin futures Bakkt and ErisX began to be built for them. But obtaining licenses and the start of trading was delayed: Bakkt started working in September 2019, ErisX – even later. The spring rally 2019 went on without the legal participation of institutions and, in fact, contradicted their interests, preventing them from buying at the lows. When they entered the market, bitcoin had a negative trend, but was still worth $9,000. Institutional activity on Bakkt was initially modest, and it was only when BTC fell to $7,000 that deliverable bitcoin futures gained some popularity. If in September the daily trading volumes of Bakkt were below $1m, then by the end of the year they amounted to tens of million.
Unlike 2019, many large players from pension funds and investment companies like Fidelity have participated in this rally from the very beginning. The main growth comes from institutional money. At the same time, not all interested institutions have already entered the market: many are still put off by the high volatility of cryptocurrencies, which complicates risk management. However, as JP Morgan research shows, this volatility is gradually decreasing. In April it has reached 3 and 6-month lows. It is possible that soon those institutions will invest in BTC that were waiting for the decline in volatility.
Second Factor: Political Climate
During the 2019 rally, the attitude of states towards cryptocurrencies was largely unclear. On the one hand, the ErisX and Bakkt exchanges were expected to open, designed to legitimise…