CoinShares: Update on the factors driving the recent bitcoin rally

January 8, 2021

CoinShares, a digital asset management firm, sees a continued spike in the demand for bitcoin, which is largely driven by sustained and unprecedented institutional interest, showing no sign of abating moving into 2021.

Frank Spiteri from CoinShares elaborates: 'It seems like we’re in the middle of a simultaneous awakening among institutions to bitcoin as an uncorrelated store of value asset with the possibility of serving as an inflation hedge in the face of a highly unconventional monetary policy environment.

Our exchange data analysis offers further clues into both retail and institutional behaviour lately, with volumes and exchange trade distributions being of particular interest to us. Bitcoin fervour over the last month has reached record levels as indicated by volumes on exchange. Total market volume traded (in US$ terms) peaked at US$25bn on 4^th January 2021, far surpassing the historical highs of US$15.6bn seen in March 2020.



Trusted exchange data, where there is more accurate measurement of volumes and better regulatory supervision, highlighted Bitcoin volumes peaked at US$12.9bn. We have also witnessed a rise in the proportion of investors using trusted exchanges, suggesting greater participation by institutional investors who typically favour exchanges with a higher level of regulatory oversight and more effective custody controls. Trusted exchanges now make up 58% of the total, higher than at any time during 2020.





While we have seen some recent high profile investments from investors such as Ruffer, these investments combined only represent 24% of a single day’s trading volume implying there are many other investors taking a position in Bitcoin and inflating volumes.

It is worth noting that in Bitcoin (coins) terms, trade volumes are well below the levels seen in March 2020, highlighting that much of the volume rises are due to Bitcoin being priced in US$ terms.

 

The volume data points indicate early institutional support, and while prices have risen to incredible levels, there could be a lot further to go as more investors add positions to their portfolios.'