Why has the price of bitcoin been going up for a few months now?
It was only three months ago, on 7 October 2020, the price was just over $10,000, but now it is over $40,000 and doesn’t seem to be going down.
Although it has risen fourfold in three months, it looks as if it will continue to rise, with some forecasts suggesting that it is heading for $50,000.
In reality, however, although this is a single bull run, it should be divided into three distinct moments.
The first was the period when the price began to rise significantly above $10,000, heading towards $20,000.
Indeed, $20,000 was the all-time high recorded during the previous Bitcoin Billionaire halving cycle, more precisely on 17 December 2017. At this early stage simply the price of bitcoin returned to the highs of the previous cycle.
This dynamic was actually expected by many, also because something similar had already happened in the previous cycle, between late 2016 and early 2017.
It is therefore possible to define this phase simply as that of a return to the previous highs.
To tell the truth, however, this is not a sufficient reason to explain the doubling of value in about a month and a half.
Why the price of Bitcoin is rising: Paypal and Institutions
Behind this rise, however, is certainly the growing interest of large institutional investors in an asset that seems to be able to hedge against the inflationary risks of the US dollar.
Once back at the highs, however, a second phase was triggered, which in about two weeks took the price of bitcoin to around $30,000.
This very rapid growth is probably not due to institutional investors alone.
For example, the Google Trend search graph for the word „bitcoin“ reveals a clear and sharp increase just as the $20,000 mark was exceeded, with search volumes remaining relatively high until 1 January 2021.
Therefore, in this second phase there was probably an overlapping of the purchase queue of institutional investors, who probably continued to buy en masse up to around $25,000, and the beginning of a purchase boom by retail investors that started later.
From 2 January onwards, the third phase was triggered, which took the price up to $40,000.
As the charts reveal, this third phase is marked by a significant and further increase in Google searches. Moreover, as revealed in recent days, purchase volumes via PayPal have literally exploded.
PayPal only enabled the buying and selling of cryptocurrencies for US customers in November, but until the first days of January, trading volumes were relatively low. Since 2021, however, they have literally exploded, showing quite clearly that this third phase is marked by a significant increase in activity on the part of retail investors.
While on the one hand these small, casual amateur investors are often only interested in seemingly easy, short-term gains, large professional investors tend to be more interested in holding BTC in their portfolios for the long term.
In between are the professional traders who exploit these dynamics to speculate.
Thus, the first phase of this bull run may have been driven by long-term investments by institutional investors, while the third by outright FOMO (Fear Of Missing Out) by amateur speculators looking for a quick profit.
In between there was an intermediate phase probably characterised by an overlap between these two dynamics.
Although this means that the current phase may be the product of over-enthusiasm, the fact that the volume of Google searches has not yet reached the all-time highs of late 2017 suggests that there may still be room for growth.