Why isn’t bitcoin (BTC) going up yet?
It’s frustrating if you’re a HODLer (Strong Hands for crypto meaning to hold on for dear life).
But at the same time, we may never see bitcoin at this lower price again. So, if you’ve been waiting to buy, now could be the time.
There are some extremely bullish things going on that suggest the conditions for a rally are getting stronger.
For example, 62% of all bitcoins have been not moved for at least a year, which is close to an all-time high:
In other words, bitcoin is dominated by long-term holders right now.
As you can see in this chart, they only sell when bitcoin makes a giant move higher.
So as bitcoin stays low, I don’t see this number going lower anytime soon.
This trend of long-term conviction is necessary for the price to go up, but it’s only half of the equation: supply.
The other half: demand.
What Drove the Last Bitcoin Rally?
We still haven’t seen strong demand over the past 9-10 months.
One of the key drivers of the last bitcoin rally was Grayscale — the largest digital asset manager in the world.
It bought nearly 300,000 BTC between June 2020 and February 2021:
Going back to the first chart, during this time the supply conditions were the same: From June through September, the supply being held for over a year grew from 60% to 63%.
That means the market was becoming less and less liquid, which means that big buyers or sellers can have a larger effect on price.
Sure, Grayscale “only” bought about 1.6% of the total supply at the time.
But another way of looking at that is they bought all of the newly-mined bitcoin during this period plus an extra 100,000.
Essentially, Grayscale dried out a lot of liquidity from the market at a time when long-term holders were dominant. And in doing so, pushed the price up.
By the time they were done buying, they owned more than 3% of the entire supply, which is enough to have a serious effect on any market.
Now, we have a very similar setup in supply and the market is illiquid.
For a sustained rally, we need another Grayscale-like player to add solid demand to the mix. So, who will that be?
3 Players to Bring Bitcoin Demand
I’d argue that right now there are more possibilities than ever. But here are some major players that could bring the demand:
No. 1: Governments.
The two most obvious right now are Ukraine and Russia.
Ukraine has been getting massive crypto donations — primarily bitcoin and Ethereum.
Russia may turn to bitcoin as an alternative reserve asset to gold, as they’ve had their gold and other reserve assets frozen in several countries.
However, even before the invasion began, Ukraine reported owning $2.6 billion in bitcoin.
El Salvador has become the global pioneer for making bitcoin a reserve asset and legal tender. One thing you probably aren’t seeing on the news is the fact that their bitcoin bond sale is coming up next week.
Their goal is to sell $1 billion of these bonds, which make annual bitcoin payments to holders.
If they meet that goal, they’re going to put half the proceeds into bitcoin, which at current prices would buy them at least 12,500 BTC.
No. 2: Institutions.
First, it’s necessary to point out that if a company wants to put bitcoin on its balance sheet, it’s going to want to make sure it’s as safe as can be.
As Grayscale shows, the rise of custodial services has been enormous the past couple years.
Another example is Coinbase, whose custody services reached $10.5 billion in assets by the end of 2021.
And just this week, State Street announced that they’re also going to offer crypto custody services.
With over $4 trillion in assets under management, I believe State Street has serious potential to be another Grayscale-like demand driver.
No. 3: America 2.0 Companies.
We’ve seen companies like MicroStrategy, Tesla and Square make bets on bitcoin over the past year or two.
And I believe we’re going to see many more follow suit.
This will create demand over the next several years as the proof that bitcoin is a fantastic reserve asset continues to become undeniable.
Overall, I believe that with the current supply conditions, we’re going to see bitcoin make a serious move higher this year as a result of increased demand.
If you’ve got bitcoin in your equal-weighted portfolio, HODL it.
If you’re looking to add more. Buy low and slow and build up your position. Then HODL for bitcoin’s move higher!
Regards,
Ian Dyer
Editor, Crypto Flash Trader