Bitcoin blasts past $108,000 – Is $210,000 next? Institutions think so

As a seasoned cryptocurrency investor with a decade of experience under my belt, I find myself utterly captivated by the current state of the market. The convergence of institutional demand, shrinking supply, and improving market sentiment paints a picture that is reminiscent of the late 2017 bull run – an era I lived through, albeit with a few more gray hairs now.

Could the surge of Bitcoin to $108,000 be due to a potential significant shortage in institutional supply brought about by factors such as Trump’s speech, the introduction of ETFs, and MicroStrategy’s large-scale purchases?

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Bitcoin soars to new highs

Bitcoin (BTC) has once more grabbed the attention. On December 17th, BTC reached a new peak at $108,260, boosting its growth beyond 50% since the U.S. election. At the moment of writing, it is being traded around $106,663.

The surge in BTC’s value can be attributed to the proposal made by President-elect Donald Trump regarding the creation of a U.S. Bitcoin strategic reserve, an idea that has ignited enthusiasm throughout various financial markets.

Trump’s declaration, made during his address at the New York Stock Exchange on December 12, focuses on establishing the U.S. as a frontrunner in the digital asset sector compared to international competitors. He emphasized the importance of America taking a leading role in “achieving greatness with cryptocurrency” and creating digital reserves comparable to its existing strategic oil reserves.

The idea of a Bitcoin reserve isn’t entirely new. It was first introduced through the BITCOIN Act, championed by Republican Senator Cynthia Lummis, which envisions the U.S. acquiring 1 million BTC over the next five years to help address the growing $35 trillion national debt. 

A significant contributor to this rise has been increased institutional involvement, notably from MicroStrategy – a company renowned for its aggressive Bitcoin purchasing strategy.

Just over a week ago, MicroStrategy disclosed that they had bought approximately 1.5 billion dollars’ worth of Bitcoin, with an average cost of 100,386 dollars per coin. With this latest purchase, their total Bitcoin holdings now stand at about 439,000 coins, which equates to a value of around 47 billion dollars.

The company’s Bitcoin investment has proven highly profitable, significantly increasing its market value from approximately $1.1 billion in 2020 to around $100 billion as we stand today.

Additionally, it’s anticipated that MicroStrategy’s upcoming addition to the Nasdaq 100 index will likely drive increased interest in its shares due to portfolio rebalancing by funds and ETFs next week.

As a cryptocurrency investor, I can’t help but notice the momentum Ethereum (ETH) is gathering. After a brief pause, ETH seems to be rejuvenated, reaching a seven-day peak of $4,106 on December 16—a weekly increase of 6%.

Currently, Ethereum is showing a slight dip due to investors cashing out their profits, but it’s holding strong at approximately $3,950 for now.

How about we delve further into the main advancements propelling Bitcoin and Ethereum, examine the economic factors influencing this market surge, and hear predictions from experts regarding future trends.

Institutional powerplay

Bitcoin and Ethereum are both showing strong momentum, but the underlying story becomes clearer when we look at ETF inflows, liquidations, and futures open interest. 

This month, Bitcoin ETFs have been experiencing significant growth. Starting from the beginning of December, they’ve received daily inflows consistently, accumulating approximately $5.16 billion by December 16th.

The accumulation of these inflows has significantly increased the combined value of Bitcoin ETF holdings to an impressive $123 billion, indicating substantial trust, particularly from institutional investors.

Despite the narrative presented by Ethereum ETFs, there’s a different tale unfolding. From their debut on July 23 until December 3, inflows were relatively small, totaling approximately $733.6 million. When viewed against Bitcoin’s performance, this amount appears quite insignificant. However, it’s evident that the tide is turning. The momentum seems to have significantly changed.

Over the past few days, there has been a steady increase in investment into Ethereum ETFs, totaling approximately $1.58 billion since December 4th. This trend indicates that investors are becoming increasingly interested in Ethereum, possibly due to its impressive price performance and Bitcoin’s dominance in the market.

Market insights are enriched by analyzing liquidation data. Over the past day, up to December 17th, a total of approximately $339 million in positions were liquidated across the cryptocurrency market. This included $205 million in long positions and $134 million in short positions being closed out.

As an analyst, I’ve observed that the total liquidations for Bitcoin have been approximately $60 million recently. Interestingly, a significant portion of these liquidations, about $30 million, stemmed from traders who had short positions – essentially betting against Bitcoin’s rise. In contrast, long positions, which are bets in favor of Bitcoin’s upward trend, accounted for around $29 million. This data indicates that a large number of traders who were wagering against Bitcoin’s bullish rally were compelled to exit their positions as the price surpassed $108,000.

More sell-offs (liquidations) occurred on Ethereum, amounting to $78.5 million, with short sellers bearing the brunt of these losses at around $52 million. This once more demonstrates that ETH’s recent price surge to $4,100 took many pessimistic traders by surprise.

As an analyst, I’ve observed a significant surge in the open interest of Bitcoin’s futures market. Just a few weeks ago, the total value of outstanding contracts was approximately $32 billion.

After Donald Trump’s election win sparked optimism in the market, that amount significantly increased and reached approximately $55 billion by mid-November. Subsequently, this figure has kept rising, culminating in an impressive $70 billion as of December 17th.

An increase in open interest along with higher prices indicates a positive or ‘bullish’ trend, suggesting that fresh funds are entering the market and traders are making wagers on further price increases.

In simpler terms, Bitcoin’s upward trend isn’t merely fueled by leftover energy. Instead, Exchange Traded Fund (ETF) investments are increasing, trading in futures contracts is on the rise, and those who bet against Bitcoin (short sellers) are finding it difficult to hold their positions.

Ethereum, though a bit behind initially, is currently experiencing the same wave of growth. This surge is driven by increasing Exchange Traded Fund (ETF) investments and the clearing out of short positions.

It seems that both these investments are on a steady growth trajectory, as they receive support from big investors and the futures market, which collectively suggest a positive outlook.

Macroeconomic crosswinds

Presently, the overall economic landscape exhibits a blend of favorable and unfavorable conditions. This includes a decline in the value of the US dollar, anticipation for interest rate cuts, and political instability in Europe, which collectively casts doubt on the stability of worldwide financial markets.

Recently, the US Dollar, which had been on an upward trend, seems to have hit a roadblock. Contrary to predictions, the November Retail Sales figure came in at 0.7% instead of the anticipated 0.5%. While this figure surpassed expectations, it didn’t quite boost confidence. Moreover, when you exclude car and transportation sales, the growth rate was a modest 0.2%, falling short of the projected 0.4%.

Revising down the spending figures from prior months implies that my analysis indicates a deceleration in consumer spending, which serves as the primary driver of the U.S. economy.

This ties directly to the Federal Reserve. The market expects a 25-basis-point rate cut on Dec. 18 with almost certainty. However, the Fed’s tone has been cautious about 2025. 

As a crypto investor, I’ve noticed that anticipation for significant future interest rate reductions seems to be cooling down, thereby preventing the US Dollar from experiencing a more substantial drop in value.

As an analyst, I find that a strengthening U.S. dollar typically exerts a bearish influence on riskier investments like Bitcoin, as it tends to be viewed as a more secure option by investors in times of uncertainty. However, with the dollar’s rally taking a breather at present, this momentary pause offers some respite for the crypto market.

In contrast to forecasts, U.S. industrial production actually decreased by 0.1% in November, indicating that specific parts of the economy might be facing difficulties.

With a slowdown in the equity markets – Asian, European, and U.S. stocks experiencing losses, and U.S. futures dropping approximately 1%, there seems to be a widespread apathy towards conventional investment options.

In the past, when conventional investments don’t perform well and inflation stays low, money tends to move towards alternative investments such as Bitcoin. But a general pessimistic view can create volatility and suppress optimism.

Currently, the political turmoil in Germany (following Chancellor Olaf Scholz’s loss in a confidence vote) and ongoing economic struggles in France are eroding the strength of the Euro.

Because the Euro accounts for approximately 58% of the U.S. Dollar Index, it generally bolsters the value of the U.S. dollar. Yet, during periods of global unrest, investors often seek out assets that aren’t tied to specific governments or central banks, such as Bitcoin.

In the current situation, the U.S. 10-year Treasury yield has slightly decreased to 4.38%, down from its previous peak of 4.43%. If yields keep dropping and interest rates continue to decrease at a faster pace, borrowing money becomes less expensive. Consequently, investors might start seeking out investments that offer higher returns.

In situations where trust in conventional investments wanes, Bitcoin and Ethereum might potentially thrive due to their reputation as high-yield options. Yet, it’s important to remember that no investment comes with a guarantee of success.

What do experts think?

Currently, the continuous surge in prices for Bitcoin and Ethereum resembles historical scenarios that often precede significant price spikes. Despite the current positive trend, it’s crucial for investors to keep a close eye on certain warning signs.

One of the most key observations is Bitcoin’s tightening supply dynamics. As Quinten pointed out, “BlackRock eating up 9x daily mining supply,” — a clear indication that institutional investors are snapping up Bitcoin faster than it can be mined. 

As exchange-traded funds (ETFs) focused on Bitcoin become more accessible for institutions, the idea that a sudden decrease in Bitcoin’s supply could occur is becoming increasingly popular. If these institutions continue to invest in Bitcoin at their current pace, this reduction in supply could create a stranglehold, potentially boosting Bitcoin’s price growth even further.

Currently, Ethereum appears to be displaying signs of robust structure, as suggested by its historical trends. Analyst Ali Martinez notes that in past market upswings, Ethereum’s dramatic surges took place when long-term investors transitioned from a state of belief into a “greed” phase.

Currently, Ethereum is yet to reach its full potential, implying that a significant increase in ETH price might be imminent, mirroring Ethereum’s recent trend as it gradually approaches the $4,000 mark following several months of stability.

Including Bitcoin’s MVRV ratio to the mix, a commonly used valuation indicator. The MVRT ratio determines Bitcoin’s market worth (its current market capitalization) versus its realized worth (the average purchase price derived from on-chain data). Previous trends suggest that BTC’s MVRT ratio reached 4.7 times in 2017 and 4 times in 2021.

Following Presto Research’s projections, if we use a more modest valuation multiple of 3.5 times on the estimated realized value of Bitcoin ($1.2 trillion by Q3 2025), we could potentially see the network value soaring to $4.2 trillion. This equates to approximately $210,000 per Bitcoin. As an analyst, these figures underscore the immense potential that Bitcoin continues to hold in the coming years.

On the other hand, reaching these prices isn’t likely to be an easy or straightforward journey. As Michael van de Poppe pointed out, the Federal Reserve’s upcoming meeting could introduce a significant uncertainty factor.

Anticipating a potential interest rate reduction, the Fed’s remarks might cause market turbulence. Historically, Bitcoin has shown a tendency to react swiftly to central bank decisions because these decisions can significantly influence liquidity levels within financial markets.

In Poppe’s words, “I won’t be surprised we’ll see $110K and $95K in the same week.”

If the price surge of Bitcoin continues and investor trust grows, there’s a chance that Ethereum might once more follow suit, having historically trailed behind but eventually catching up.

In summary, the ongoing surge in prices is well-established, built on three key factors: increasing institutional interest, decreasing availability, and a rising optimism among traders.

As an analyst, I must acknowledge that volatility continues to be a constant factor, given the impending decisions from the Federal Reserve and the ongoing uncertainties in the macroeconomic landscape. Despite the positive indications suggesting a bullish trend, it’s crucial to prioritize risk management as we navigate deeper into this investment cycle. A timeless piece of advice that I always keep in mind is: never invest more than you are willing to part with.

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2024-12-18 04:13