Bitcoin topped $18,600 on Friday, continuing a vertical climb that accelerated in early October. The largest digital currency by market cap is up 160% in 2020, and up 190% since March 15, following a crash in the second week of March that saw the price drop 25%.
Now it’s not far from its all-time-high of around $19,800 toward the end of December 2017.
Bitcoin (BTC) bulls are hoping this time is different. And it is, judging by the breathless media coverage and general mania: there isn’t any.
In the previous bull run, financial (and non-financial) press went into a frenzy, in many cases covering bitcoin for the first time, and the price hike became a cultural conversation around Thanksgiving dinner tables. Stories proliferated of crypto newbies buying up bitcoin on exchanges, many of whom lost their shirts when bitcoin dropped precipitously in January 2018.
This time, the coverage has been muted. Perhaps you can chalk that up to the mental toll of the pandemic or the distraction of the U.S. presidential election. (The debate feels in many ways similar to the debate around why live sports TV ratings are way down.) Or it could be a sign that the price hike is less remarkable because the public now knows about bitcoin, and it has become less of an oddity. That can be a positive indicator for its future use and mainstream acceptance.
Growing acceptance, both by consumer-facing companies and Wall Street institutions, provides much of the explanation for bitcoin’s 2020 run. Here are some of the recent news events and trends that have boosted bitcoin.
Increasing institutional adoption
Over the past couple of years, a range of Wall Street investment firms and financial institutions have gravitated toward cryptocurrency—even if just dipping a toe in by putting a sliver of their assets into bitcoin or altcoins.
That rising interest helped Grayscale Investments, the largest crypto investment firm, top $10 billion in assets in the third quarter. (Grayscale is owned by Barry Silbert’s Digital Currency Group, the single largest investor in cryptocurrency startups, which owns the news site CoinDesk.) Grayscale offers publicly traded funds pegged to the prices of bitcoin, bitcoin cash, litecoin, ether, ethereum classic, XRP, Zcash, and others. In Q2 of this year, more than a dozen well-known Wall Street firms disclosed with the SEC new investments in Grayscale Bitcoin Trust (GBTC), including ARK Invest and Boston Private Wealth.
Thanks to bitcoin prices, Galaxy Digital, the crypto investment firm of Mike Novogratz, saw profit of $44.3 million in Q3 2020, a huge turnaround from losses of $68.2 million in Q3 2019.
Reports of traditional finance embracing crypto have fueled more buying. “Bitcoin thrives off network value, so the more people who adopt it, the more parabolically the price rises,” Tom Lee of Fundstrat said on Yahoo Finance Live on Friday. “We’ve seen a pretty substantial increase in engagement this year, and I’ve been pretty surprised, because it is institutional.”
Even big banks have appeared to warm to bitcoin.
Goldman Sachs in August named a new head of digital assets, Matthew McDermott, and he reportedly plans to double the headcount of Goldman’s crypto team. (Back in 2018, then-CEO Lloyd Blankfein said it would be “arrogant” to dismiss bitcoin entirely, but more recently, on a call in May, Goldman analysts declared cryptocurrencies “not an asset class.”)
JPMorgan last year launched JPM Coin, an internal digital token for use by the bank’s institutional clients, which runs on the Quorum blockchain that JPM developed and is overseen by JPM’s blockchain unit Onyx. At the time of launch, Onyx CEO Umar Farooq wrote in a blog post, “We have always believed in the potential of blockchain technology, and we are supportive of cryptocurrencies as long as they are properly controlled and regulated.”
More recently, JPM began allowing customer transfers in and out of Coinbase and Gemini, two U.S. crypto exchange sites. All of this looks like JPM at the very least acknowledging the future viability of digital assets. (Jamie Dimon this week said bitcoin is still “not my cup of tea,” but he also said, “We will always support blockchain technology.”)
The institutional trend started well before the pandemic made bitcoin an even more appealing asset. If you ask Grayscale managing director Michael Sonnenshein, increased regulatory attention, plus the approval of bitcoin futures contracts from places like CBE and Cboe, have all served to make Wall Street feel more comfortable about crypto. “Institutional investment, regulatory clarity, futures contracts—there’s so much that has developed and solidified around the ecosystem,” Sonnenshein told Yahoo Finance in May.
Third bitcoin ‘Halving’ happened in May
Back in May, bitcoin underwent its third “halving” (or “halvening,” as some prefer), the event that happens every four years when the reward that bitcoin “miners” receive for mining bitcoin (using expensive computers to upload bundles of bitcoin transaction records to the bitcoin blockchain) gets cut in half as a built-in mechanism to slow the creation of new bitcoins and limit bitcoin’s supply. The new mining reward is 6.25 bitcoins per block; from 2016 until 2020 it was 12.5 bitcoins.
Historically, the Halving itself does not prompt an immediate spike in the bitcoin price. After the 2012 Halving, bitcoin saw a marginal increase over a few weeks, then went on a massive ride in the next months. This year, the price increased slightly in the days after the Halving, and by two weeks later had dropped below where it was before the Halving.
But as Fundstrat’s Tom Lee points out, “History says that the year that follows the Halvenings is much more important” for price than the weeks and months that follow it. The 2020 halving is not likely the chief cause of the current price rally, but it didn’t hurt, since it’s an event that reminds investors of bitcoin’s scarcity.
Wall Street figures soften their rhetoric
Bitcoin’s price swings can be very headline-driven: sometimes a single news item about a major name praising or trashing bitcoin can move the price in the short-term. Warren Buffett (“That is not investing”), Charlie Munger (“disgusting… stupid… turds”), Jamie Dimon (“fraud… worse than tulip bulbs”), and Nouriel Roubini (“mother of all scams”) are some of the big names that have trashed bitcoin in years past.
But in May, hedge fund titan Paul Tudor Jones revealed he has put nearly 2% of his portfolio into bitcoin. He called it a “great speculation… I look at it as one tiny part of the portfolio… it may end up being the best performer of all of them.”
And this week, another representative of a huge Wall Street name had positive things to say about bitcoin. BlackRock’s fixed income CIO Rick Rieder, speaking on CNBC, said, “I think cryptocurrency is here to stay, and I think it is durable… I think digital currency, and the receptivity, particularly millennials’ receptivity of technology and cryptocurrency, is real, digital payment systems are real. So I think bitcoin is here to stay… Do I think it’s a durable mechanism that I think will take the place of gold, to a large extent? Yeah, I do, because it’s so much more functional than passing a bar of gold around.”
More and more, the rhetoric from Wall Street types is changing. Even if these old-school investors are not exactly pumping crypto with great fervor, more of them are acknowledging that bitcoin, which has now existed for more than 10 years, is not about to collapse.
PayPal and Square buy in
PayPal (PYPL) on Oct. 21 made major waves in the payments world when it announced it will soon allow buying, holding, and trading of bitcoin and other cryptocurrencies, and paying with bitcoin, in its PayPal and Venmo apps. The news sent PayPal shares to an all-time-high and prompted an instant leg higher for bitcoin and some other altcoins.
Bitcoin was already on the upswing before PayPal’s announcement, but after that news the bitcoin chart line went vertical, and many attribute bitcoin’s recent price ride directly to PayPal. It is certainly a major consumer-facing name publicly showing its faith in crypto, and if the young people who use Venmo for all their peer-to-peer payments buy bitcoin anonymously once PayPal adds it (the same young people that have flocked to Robinhood to buy stocks during the pandemic), that could send the price soaring more dramatically.
Square (SQ) is another mainstream fintech name to show love to bitcoin, stemming directly from CEO Jack Dorsey’s crypto fanaticism. In 2018, Square added the ability to buy and hold bitcoin to its Cash App, and this year the company went a step further by separately investing in $50 million worth of bitcoin as an asset for its balance sheet. Square’s bitcoin bet is paying off: its bitcoin revenue from Cash App trading was $1.63 billion in Q3, up 618% from Q3 2019, and its Q3 bitcoin profit was $32 million, up 1,500% from Q3 2019.
Finally, it’s worth mentioning Facebook’s (FB) attempt last year to launch its own cryptocurrency Libra, which, despite regulatory interference and launch delays, was seen as a major step forward for crypto since it shows that the world’s biggest social network believes in digital assets and aims to implement them on its platform.
One common take on bitcoin’s strong gains during the pandemic is that quantitative easing actions by the U.S. Federal Reserve and stimulus programs by governments around the world have been good for bitcoin because they underscore its scarcity. There will only ever be 21 million bitcoin created, so the supply is capped, and bitcoin has no central governing body that could step in and pump out more.
“There are so many uncertainties in this pandemic, but one thing that seems almost assured is when you print trillions of dollars more paper money, it’s going to drive up bitcoin and other cryptocurrencies,” Dan Morehead, CEO of crypto investment firm Pantera Capital, said on Yahoo Finance Live in August. “Gold’s going to go up, bitcoin’s going to go up. It is a hedge to paper currency being debased.”
Bitcoin jumped big in the days after Election Day (when a winner was still not clear) because it thrives when there is mainstream economic uncertainty—then it climbed further once it became clear Democrat Joe Biden would win, since it increased the likelihood of another imminent pandemic stimulus package. As the thinking goes, government monetary aid strengthens the appeal of bitcoin.
In 2021, a divided U.S. government, Dan Morehead wrote in a client note on Friday, “would likely result in more pressure on the Federal Reserve to expand their balance sheet. This money printing will inflate the price of things whose quantity cannot be eased—like gold, bitcoin, real assets, and even equities. It feels like bitcoin is going to melt up here.”