With Bitcoin edging every week towards a new all-time high, and other alternative cryptocurrencies also charging up the charts, the question on many experienced investors’ lips is: are we set for another painful crypto winter?
It’s a valid question to ask as well. Every Bitcoin rally since it was introduced over ten years ago has traditionally resulted in intense and exhilarating price valuation moves unheard of in conventional markets. This has happened at least three times already in Bitcoin’s relatively short history: a few months of incredible price gains, roughly half a year after Bitcoin’s block reward halving event, followed by several years of price decline.
Pain after the gain
The 2017 rally will be remembered most, because not only did Bitcoin rise from less than $1,000 in early 2017 to a mind-bending $20,000 by December, but hundreds of other crypto tokens hitched the ride to dizzying heights.
But what sets that rally in memory is what happened next: a deep, drawn out decline, where Bitcoin actually fell to as low as $1,900 — that’s a 90% drawback, also unheard of in traditional markets. Altcoins fared even worse, with many virtually going to zero value in the following two years, marking the era of the “crypto winter”.
Investors lost confidence across the board, and crypto companies went insolvent. ICOs and new projects dwindled — those that came up found it difficult to raise capital or interest.
What’s different this time
All that changed in 2020 — although Bitcoin suffered a pullback to below $4,000, it has continued to burst past the $20,000 mark, and has so far in the early weeks of 2021 been leading a charge to seemingly $50,000 and beyond. Altcoins have benefited from this as well, with Ethereum keen to hold onto levels above $1,000 as its own long-awaited 2.0 upgrade is underway, amid a blossoming of decentralized finance (DeFi) projects.
And this time, there are clear signs that this Bitcoin rally won’t be the FOMO-induced and panic buying-fuelled parabolic rise that will crash and burn. Instead, as we’ve pointed out in our blog before, there is one key and crucial difference in this momentum: the strength and long-term predictability of institutional investment.
Bitcoin rallies of the past have always been driven first and foremost by retail investment, that is, regular people and individuals putting their savings and liquid capital into Bitcoin. That’s a powerful demand indicator, of course, and explains how Bitcoin has been steadying the ship for the past few years around the $10,000 mark.
But as we pointed out, with governments and big companies now betting big on Bitcoin, it would be foolish to think that we’re headed for another 2017 repeat.
Institutional money is in for the long game
When we’ve got government pension funds like Norway buying Bitcoin, it’s not to liquidate in 5 or 10 years, but 20, 30 or more years to provide long-term growth for its citizens and social structures.
When we’ve got companies like MicroStrategy buying up hundreds of millions of dollars worth of Bitcoin, it’s not to sell at profit, it’s to store their profit values for years to build upon and hedge against the risk of inflation (and we all know how the US dollar has been non-stop printing!).
And when we’ve got traditional companies and banking brands like JPMorgan predicting a Bitcoin price of $140,000, or Thomas Fitzpatrick saying $318,000 (by 2022) or the Winklevoss Twins insisting on $500,000 (by 2030)… then we know that institutionals are ready to wait that long, and believes in Bitcoin, and are putting their money where their mouth is.
Retail investors will always be an important part of the Bitcoin economy, and their organic long-term utility will continue to improve and strengthen the fundamentals, but this is truly the era of institutional involvement.
And that means no weak hands.
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