Insider Insights November 2020 Issue

Bitcoin’s Historic Bull Run – Uncharted Territory and New Highs

Digital assets are finishing off an incredibly turbulent year with a bang, with both Bitcoin and altcoins finding new highs and old favorites climbing closer towards previous highs. Positive pandemic news in the form of extremely encouraging vaccine results was released which sent traditional markets soaring. Despite this, digital assets markets did not lose their edge, even though they were positioned as a safe haven asset to sit alongside gold over the prior year. The strides that digital assets were making in accessibility and investment levels over the year have finally paid off, which led to an explosive price gain once all the underlying factors were finally realized.

What Makes This Run Different?

More institutional investors and “whales” are digging deep than ever before, and have pushed Bitcoin to a market cap of over $345 billion. Thomas Fitzpatrick of Citibank’s CitiFXTechnicals market insight group suggested that the Bitcoin price could hit a target of $318,000 a year from now, citing similarities to the 1970s gold market where a sudden fiscal policy change by the Nixon administration shook gold out of the $20 to $35 range it had occupied for the prior 50 years. While such expectations should be tempered by the realities of the situation, it’s indicative of the wider sentiment of the market: despite its record highs, the price is likely going to keep increasing with a level of institutional support it has not previously enjoyed.

Concomitant with the new market high is Google Trends search activity for Bitcoin finding its 2020 peak, and there may be more than just the market records capturing attention. In a November 24, 2020 interview, Mike Novogratz of Galaxy Digital suggested that PayPal’s recent adoption of crypto was the “shot heard around the world” and other large institutions are now quickly realizing that they now need a plan for digital assets, and also believing that volatility will fall and the price will stabilize as the money continues to move from the hands of speculators to institutions.

Altcoins have experienced their own historic rally, with Ether and XRP notably reaching their own respective market peaks in the wake of Bitcoin’s movement. Altcoins have long played “follow the leader” with Bitcoin’s price, primarily driven by its sheer dominance of market capitalization and user adoption. Technical differences between the coins have created more reasons for the price to soar, though – the rallying price has driven the Bitcoin transaction cost higher, which gives altcoin competition steam for their own markets to push forward in what several investors have dubbed “altcoin season.”

This has also resulted in a shortage of available bitcoin to purchase, which has also factored into the price spike. Now that PayPal has finished its integration, it has added 300 million new accounts to the 100 million crypto users that have been aggregated over the past decade. Together, CashApp and Bitcoin purchases have accounted for more than 100% of all newly minted bitcoin. Over the next decade the amount of incoming bitcoin will continue to decrease with barriers to entry also continuing to topple. While the next Bitcoin halvening is not until 2024, now that it is being more accepted as a long term asset class, that point will become relevant a lot sooner than anticipated and there is now ample history to draw from to predict how the market will react to the event.

 Ethereum 2.0 Has Been Fully Realized, Improvements On the Way

The price of Ethereum (ETH) has reached a two-year peak as well, finding a price level of $600. First off, the rally is backed by fundamentals, rather than speculation – the daily gas used by Ethereum has followed a similar curve to its price. A surge in gas used is directly correlated with user activity in the network, which could be caused by a surge in overall decentralized finance activity as well as the impending Eth 2.0 launch. This has had the unfortunate side effect of pushing the transaction cost higher, which presents challenges with a model like DeFi that demands fast, iterative transaction movement.

Ethereum Price (2020) – Source:  CoinTelegraph


Bigger news still, though, is Ethereum 2.0’s deposit contract securing its minimum ETH requirement, with Eth 2.0’s genesis block being marked for midnight GMT on December 1st, 2020. The Eth 2.0 launch represents the first phase in a parallel effort to enhance the asset’s throughput and scalability, with the full rollout expected to take approximately two to three years. Given that Ethereum is the centerpiece of the decentralized finance sphere, this is a huge step forward for the model. The current network has strained under the congestion created by DeFi, and bringing relief through these upgrades will ensure the model’s viability for years to come. Steven Becker of MakerDAO indicated that “the Sharding upgrade alone should enable a return to the days when fees to generate and send Dai cost just cents, not dollars. Inexpensive transactions would facilitate an increase in DeFi adoption and innovation.” By percent increase, Ethereum has actually seen bigger gains than even Bitcoin over the prior three months, with Ethereum rising 54% to Bitcoin’s 37%.

Concluding Thoughts

The sudden growth of both Bitcoin and Ethereum has brought some challenges to handle with transaction fees and network congestion, but in the end, these are good problems to have as they signify continuing growth and acceptance. Bitcoin’s institutional interest and development as a long term asset class has become evident through its unexpected growth in the face of media events that were expected to slow it down. The injection of fiat currency in response to the pandemic has not yet slowed, and with digital assets about to enjoy a sudden and massive infusion of users through CashApp and PayPal integration it stands to reason that the rally is not over just yet.

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Darius Askaripour
Managing Partner

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