Weak Supply From China Driving the Price Higher
According to analysts, a depletion in Bitcoin supply might be one of the main factors behind Bitcoin’s price rally. The reason for this is because miners in China are struggling to sell BTC in order to make money amid the government’s vigorous measures against local exchanges.
“The lack of supply has fed extremely well to the trendiness of this rally, without any of the large sell-downs typical of miner activity in the past,” crypto-asset trading firm QCP Capital from Singapore said.
In contrast to QCP’s explanation, other analysts and experts believe the increase in demand for Bitcoin, surging inflation in developing countries, and search for yield are the key reasons behind the top cryptocurrency’s price rise.
Generally, miners use cash and sell their Bitcoins in the market to pay for their expenses, such as electricity, which they finance in their local currency. This means that miners are continuously offloading Bitcoin, which significantly impacts the price of BTC.
But since the Chinese government initiated a crackdown on local exchanges because of telecommunications fraud and money laundering, miners in China have been struggling to liquidate their crypto assets for cash as their bank accounts and cards are getting frozen as a result of these measures.
Furthermore, Chinese miners account for 70% of Bitcoin’s hash rate for mining power.
The troubles started since the Chinese government started freezing bank accounts and cards in the summer, and the circumstances have gotten even worse lately.
“Mining pools were selling large chunks of bitcoin in early September through exchanges, but this was hastily halted as their last remaining fiat off-ramp avenues were impacted with the arrest of large exchange heads like Star Xu and other [over-the-counter] brokers,” QCP Capital added.
Miners offloading Bitcoin sent the cryptocurrency tumbling from $12,000 to $10,000, the Singapore-based firm said. But after the crypto exchange, OKEx’s accounts were frozen last month, and the Bitcoin supply has desiccated.
The supply depletion and the increased activity among institutional investors in the spot market drove the Bitcoin’s price higher lately. Bitcoin price now trades at $19,230, which is the highest it traded since December 2017. It is apparent that Bitcoin bulls are now trying to push the price action into fresh all-time highs above the $20,000 mark.
BTC Could Reach $60,000 in a Year’s Time — Novogratz
A prominent crypto bull Mike Novogratz argues that Bitcoin’s outstanding price surge in 2020 is different from the one three years ago when it plummeted 78% a year after it reached its peak.
Novogratz, who acted as a hedge fund manager for the banking giant Goldman Sachs, said this price decline happened because of the "global speculative frenzy" led by retail investors.
He believes that the situation is different now as the current price rally is driven by institutional investors and that the cryptocurrency could climb to as much as $60,000 by the end of next year.
"You can't buy bitcoin at Citibank or Bank of America, but their strategists are talking about it," Novogratz said. "We're seeing institutions buy into this, we're seeing high net worth families buy into this, across the board you're getting institutional adoption."
As the current Chief Executive of crypto investing firm Galaxy Digital, Novogratz says that Bitcoin has "hit escape velocity" because investors consider the cryptocurrency a store of value instead of a speculative vehicle.
He added that young investors view BTC as social capital while the baby boomer generation sees it as a hedge against fiat currency.
A Singapore crypto-asset trading company thinks that the dry up in Bitcoin supply is one of the main reasons behind its recent price rally, in addition to the increase in demand. Bitcoin price is up nearly 40% in November as Michael Novogratz believes the current price surge could yield $60,000 by the end of 2021.
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Mariliana has an MSC in consumer analytics and business strategy. She has a special interest in fast-moving industries and big data.