Why is Bitcoin rising wildly after hitting a new all-time high? How much room is there for it to rise?

At 9:20 on January 3, 2021, according to OKEx, Bitcoin broke through 32,500 USDT and was reported at 32,515.2 USDT, with a 24-hour increase of 11.32%.

Coingecko market data shows that the current global total market value of cryptocurrencies exceeds 850.687 billion US dollars. The total market value of Bitcoin has exceeded 600 billion US dollars, accounting for about 70.9% of the total market value. Compared with the market value of well-known company stocks, the ranking has risen to 9th place, surpassing TSMC and approaching Alibaba's market value.

Why has Bitcoin accelerated its recent rise? How much room for growth is there in the future?

Why is Bitcoin rising faster?

The following figure is a weekly chart of Bitcoin. According to the upward trend of Bitcoin, the rise of Bitcoin can be roughly divided into three main price ranges: $5,000-$10,000; $10,000-$20,000, and above $20,000. As can be seen from the figure, as the upper resistance becomes smaller, the upward speed of Bitcoin gradually accelerates. It is now clearly in an accelerated rise period, with only "sky" above.

The circulation of Bitcoin is already scarce, and institutions have rushed to buy it and intend to hold it for a long time, which has led to insufficient supply of Bitcoin, further accelerating the rise of Bitcoin. According to Glassnode analysis, 78% of the Bitcoin supply lacks liquidity. Due to the large amount of Bitcoin hoarded by investors, only 4.2 million Bitcoins are currently in continuous circulation and available for sale (Odaily Planet Daily Note: Bitcoin liquidity is defined as the average ratio of received and used BTC between various entities) . Glassnode analysts further pointed out that a total of another 1 million Bitcoins became illiquid in 2020, and the rise in Bitcoin prices indicates that the current bull market is (partially) driven by this emerging Bitcoin liquidity crisis.

Data analyst Coin98 Analytics pointed out that Grayscale purchased almost three times as much Bitcoin as was added to the market that month in December 2020. Last month, Grayscale 's assets under management (AUM) increased by a total of 72,950 BTC ($2.132 billion). During the same period, miners produced only 28,112 BTC ($821.7 million), equivalent to 38.5% of the amount purchased by Grayscale . These data highlight what many people call the liquidity crunch that is emerging in Bitcoin, with big buyers absorbing all available supply and removing it from circulation, sending it to cold storage for long-term holding. In addition to Grayscale, many institutions such as MicroStrategy and Paypal are also rushing to buy. MicroStrategy CEO said that 88,000 bitcoins have now been purchased, worth more than $2.5 billion, and advocated a long-term holding strategy.

Foreign users are still the main buyers in the market, and FOMO sentiment is spreading, with a strong trend of scrambling to buy. When BTC broke through 30,000 USDT, according to crypto analyst Joseph Young, the price difference between BTC on Coinbase and Binance was 350 US dollars. This is an unprecedented Bitcoin purchase on Coinbase. This shows that foreign users' purchases are still the main reason for the rise of Bitcoin.

In addition, Bitcoin already has the property of a safe haven, and today's surge may be related to the tense situation in the Middle East. Grayscale pointed out in the report "The Great Transfer of Wealth Promotes BTC to Become a Mainstream Investment Target" that Bitcoin seems to have some common points with safe-haven assets, such as: 1. Scarcity; 2. Verifiability; 3. Not much correlation with traditional financial markets and uncontrolled. Today, according to the news released by the US military, two B-52H strategic bombers of the US Air Force took off from the US mainland, loaded with a large number of cruise missiles and flew tens of thousands of kilometers, approaching the Middle East. This is a threat issued by the United States to send nuclear bombers to the Middle East, and the target is directly aimed at Iran, a major Middle Eastern country. After arriving in the Middle East, the US strategic nuclear bombers immediately entered the Persian Gulf from the air above the Strait of Hormuz (Note: The Strait of Hormuz is a sea passage controlled by Iran) . The US Air Force's move is aimed at putting extreme military pressure on Iran. In addition to strategic nuclear bombers approaching Iran, US nuclear submarines also appeared in the Persian Gulf, which means that the two major US strategic nuclear weapons have appeared in the Persian Gulf. This is a very obvious signal that Trump does not rule out the possibility of taking military action against Iran, and it may happen at any time. Trump also publicly stated today that the United States will retaliate if Iran causes harm to any American. The tense situation in the Middle East today may be the direct stimulus for Bitcoin to break through the $30,000 mark in one fell swoop.

What factors contribute to the rise of Bitcoin?

We have previously pointed out in the article "Bitcoin breaks through $20,000, setting a new record high. Who injected a "boost"? " that the main driving forces for the long-term rise of BTC this year include four main factors: the COVID-19 pandemic, the massive money release by central banks (mainly in the United States), Grayscale's increased holdings, and DeFi lock-ups. With the mutation of the new coronavirus, the epidemic will continue for some time, and Bitcoin will continue to be affected by it. Affected by the epidemic, global central banks are also "flooding" the market simultaneously.

According to the latest ECB meeting statement in December, "in view of the impact of the resurgence of the (new coronavirus) pandemic on the economy", the ECB Governing Council decided on the same day to expand the scale of the emergency asset purchase program from the previous 1.35 trillion euros to 1.85 trillion euros, and the bond purchase will continue until at least March 2022. At the same time, the ECB also announced the extension of a number of preferential financing measures implemented during the epidemic, such as the third batch of targeted long-term refinancing operations.

On December 16, U.S. House Speaker Pelosi invited leaders of the Democratic and Republican parties to discuss a new round of relief plans. Subsequently , U.S. President Donald Trump signed the $900 billion COVID-19 relief bill. According to the new round of COVID-19 relief bill, singles with an annual income of no more than $75,000 will receive a check of $600 per person, and married couples with an annual income of $150,000 will receive a total of $1,200 checks, which is equivalent to half of the direct payment scale of the Coronavirus Aid, Relief, and Economic Security Act (CARES). In addition, the bill also includes a $1.4 trillion fund to keep the government running and expand and extend unemployment benefits for millions of unemployed Americans.

In addition to Grayscale and other institutions continuing to increase their holdings, new funds and institutions are also pouring in. For example, on December 28, Greenpro Capital Corp, a listed company, announced today that it plans to raise $100 million in debt funds in the first quarter of 2021 to establish a Bitcoin fund. On December 23, Anthony Scaramucci, founder of U.S. hedge fund Skybridge Capital and former White House communications director, said Skybridge Capital has invested $25 million in its new Bitcoin fund. On December 17, Canadian wealth management company CI Financial completed a $72 million Bitcoin fund IPO.

How big is the future of Bitcoin?

Grayscale said in the report "The Great Transfer of Wealth Promotes BTC to Become a Mainstream Investment Target" that although Bitcoin was only a niche asset that attracted a small number of investors in the early stages, it is now increasingly accepted by mainstream investors. Although most Bitcoin investors do not have much income at present, $68 trillion of wealth will be transferred to the younger generation who tend to invest in digital currencies in the next 25 years.

In November 2020, Dalio tweeted that Bitcoin was not a good store of value due to its high volatility and potential for government bans. But in December 2020, Dalio's views reversed. He said that Bitcoin (and some other digital currencies) have established themselves as meaningful asset alternatives similar to gold in the past decade. Bitcoin has similarities and differences with gold and other mobile wealth assets with limited supply (unlike real estate).

On November 9, 2020, JPMorgan Chase pointed out in a report that Bitcoin is eroding the market demand for gold ETFs. Institutional investors such as family offices view Bitcoin as a digital substitute for gold, and their demand for Grayscale's Bitcoin Trust exceeds the total demand for all gold ETFs.

Nick Panigirtzoglou, a market quantitative analyst at JPMorgan, believes that "over time, millennials will become the most important part of the investment world, so Bitcoin and gold will compete fiercely, which is beneficial to Bitcoin's long-term upward trend. Technically, the market value of Bitcoin should increase by at least 10 times in order to match the gold market based on physical bars and coins."

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