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The price of bitcoin is undergoing a parabolic price rally. As bitcoin nears its all-time high—$19,800, reached on 17 December 2017—we took a closer look at how the current rally compares to the days leading up to its previous peak, and we believe that there are notable differences. While the 2017 bitcoin rally was driven by higher volumes, likely due to retail demand, the 2020 price rally so far has been driven by lower volume. We believe the 2020 rally is driven more by institutional allocation and that investing in bitcoin has become less speculative in nature, which indicates bitcoin’s increasing status as a store of value and suggests further potential adoption.
We believe that an analytical framework focusing on volume-weighted average price is a good way to study past and future all-time-highs for bitcoin. We studied the hourly volume-weighted average prices four days before and four days after bitcoin reached its all-time-high of $19,800. The average price with the four-day buffer was $17,595.
Source: CryptoCompare. Data as of 24 November 2020.
We then created a similar chart for 2020 using bitcoin price data for 24 November and the four days preceding. While bitcoin is getting close to its all-time-high, we remark that the four-day average price of $18,547 has already surpassed the comparable 2017 average of $17,595. While the volumes so far seem somewhat lower than in 2017, we believe that one may consider the 2020 November four-day average price a new all-time-high.
We further note that in 2017, there were many trading platform outages around the all-time-high, and trading platforms were less scalable and mature. Therefore, we believe that the four-day average period approach is a suitable way to determine an all-time-high. In 2020, trading platforms, market integrity and execution capacity have generally evolved due to institutions entering the asset class and demanding higher quality services.
We believe that the 2020 bitcoin price rally is likely more institutionally driven. There have been several significant institutional developments and adoption in bitcoin this year:
To conclude, we believe that the 2020 bitcoin price rally is institutional, rather than retail, driven. In our view, investing in bitcoin is now less speculative due to its increasing status as a store of value, and we believe that there is potential for further adoption.
We would like to thank Quynh Tran-Thanh and Jimena Leon from CryptoCompare for the data and discussion on the matter.
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