Bitcoin’s incredible recent rise in price is due to two things: belief systems and recent global trends.
Bitcoin has always been about technical stability and network effects. Early on, Bitcoin was judged by whether it was fail-proof: Would it get hacked? Was "decentralization" a workable model? When it halved, did it continue to perform? Over the last 10-plus years, many of those concerns have been resolved. Bitcoin works. It doesn’t break.
On the network effects side, like any form of money, Bitcoin’s value is denominated largely by how many people believe in it. Yuval Noah Harari’s book, "Sapiens," notes that gold and the dollar are largely valued because enough people believe that they will maintain value. The same goes for Bitcoin; early on a small number of people believed which propelled early value accumulation, but now the network effects have become significant with celebrity investors and brand-name institutions supporting its belief system.
Recent global trends have also played a heavy hand in this. COVID-19 has transformed the world’s digital behaviors, accelerating 10 years of evolution into the single year of 2020. An example outcome of "work from home" and social engagement via digital tools was evident in the Reddit-GameStop (GME) - Get GameStop Corp. Class A Report activity: The ability for an unknown Reddit community to transform the value of GameStop stock changed the entire playing field of stock volatility. More importantly, it showed the capability of the few to control the larger financial outcome. Bitcoin fits incredibly nicely into a similar narrative.
According to new data from blockchain firm Chainalysis, the Bitcoin whales with account roughly $50 million or more worth of bitcoin have jumped back into the market. They have steadily increased their buying since the end of June.
The Chainalysis research also found that until late February larger investors were a “driving force” in the market. These investors were able to influence the market greatly. As they brought more assets prices increased but when they sold prices fell.
As per the data, when the price of Bitcoin started falling even the Whales started selling their digital assets and the selling was a peak in around April. From late June the Whales have started buying more added to it the larger investors also tend to be long-term holders. As per Chainalysis the Whales are trying to retain 75% of their holdings on an average.
Springing off that, the world of cryptocurrencies is much bigger than Bitcoin, right? If it's taken this long for Bitcoin to really gain legitimacy, what do you see for the other projects like Ethereum and the lesser known ones? Are any more likely to take off in the same way soon or will each have to prove itself?
Bitcoin has created the wake for many others to follow in. And while Bitcoin is famous for being the first -- with movie-ready lore around a mysterious creator Satoshi Nakamoto, and $500 million pizza buying -- it is relatively single-use case, as a store of value. Others, including Ethereum, have broader use cases, which makes the arc of their activities -- and their potential -- quite different.
Take FLOW for example, which provides the underlying blockchain technology for NBA Top Shots, a "non-fungible" token market. The platform has already generated hundreds of millions in real dollar sales of the digital NBA trading cards. Capturing the minds and passion of collectors of all types, this is clearly a different form of belief system -- one that has generated actual revenues.
Decentralized finance applications rose in prominence last fall, largely on the Ethereum blockchain.
At the same time, the world is now witnessing Bitcoin being associated with more institutional investors like Tesla, Microstrategy etc. Most institutions are now considering converting their cash reserves into Bitcoin as a hedge against financial crises.
Of course, many other cryptos have joined the race, which diverts some retail investors' interest away from it. Nevertheless, it remains the most significant cryptocurrency with a total market capitalization of $1.15 trillion, higher than the combined market cap of the world's three largest banks (J.P Morgan, Bank of America, and The Industrial and Commercial Bank of China).
Bitcoin is now closer to $100K than it is closer to $0. The recent developments around Bitcoin worldwide are a testament to the fact that it is inching closer to becoming a mainstream asset class.