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Bitcoin Explodes Above $33k As Supply Squeeze Continues

Tyler Durden's Photo
by Tyler Durden
Saturday, Jan 02, 2021 - 10:41 AM

Update (1115ET): Well that escalated quickly. Less than an hour after first breaking above $30,000, Bitcoin has spiked beyond $31k, then $32k...

Source: Bloomberg

...and now $33k...

Source: Bloomberg

Ether is also extending gains, nearing $780, but BTC is now trading at almost 42x ETH - its highest since May, erasing much of the DeFi boom's effects on Ethereum...

Source: Bloomberg

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Bitcoin prices accelerated overnight, surging through $30,000 for the first time and nearing $31,000 as we write...

Source: Bloomberg

Now over $10,000 beyond 2017's record high...

Source: Bloomberg

Ethereum was also bid to a new cycle high at $770, but well below its $1400-plus record from Jan 2018...

Source: Bloomberg

The area immediately below $30,000 had proven a source of intense selling pressure throughout the past few days, a setup similar to that which Bitcoin disrupted at $20,000 just weeks ago.

"If you're looking for an entry to HODL Bitcoin long term, don't nickel and dime an entry. You're not going to sweat a few thousand dollars of non-perfect entry when it's $100k,$200k,$300k in a year," popular statistician Willy Woo summarized on Friday.

"The main bull phase is here. Capital inflows has gone nuts."

But while the crypto currency is rising in value against the dollar, Bitcoin price claimed another all-time high, this time against gold, offering further confirmation that demand for digital assets is on the rise...

Source: Bloomberg

As Bitcoin nears $31,000, the digital currency trades at over 16 ounces of gold, surpassing the 2017 highs (15.6).

As we detailed previously, Bitcoin’s biggest proponents believe the digital currency is eating away at gold’s market cap as investors opt for the efficiency, portability and proven scarcity of the asset. Astonishingly, that view is also shared by JPMorgan Chase analysts, who believe Bitcoin’s digital gold narrative is drawing capital away from precious metals.

Additionally, as CoinTelegraph notes, some believe that Bitcoin’s supply squeeze could send prices higher over the course of 2021. Specifically, digital asset manager Grayscale bought up nearly three times the BTC mined in December. Demand from PayPal, Cash App and others has also contributed to an apparent supply shortage of BTC.

It's official: Miners can't produce enough Bitcoin

Last month, the company added a total of 72,950 BTC ($2.132 billion) to its assets under management (AUM). During the same period, miners generated just 28,112 BTC ($821.7 million) — 38.5% of Grayscale's buy-in.

The figures underscore what many have described as an ongoing liquidity squeeze in Bitcoin, where large buyers suck up any available supply and remove it from circulation, sending it to cold storage for long-term hodling.

As Cointelegraph reported, the phenomenon was already visible in November 2020, but December 2020 saw a clear increase in demand from Grayscale and other institutional entities.

BTC mined vs. bought by Grayscale in December 2020. Source: Coin98 Analytics/ Twitter

Grayscale now controls $20 billion in crypto

As the clock chimed midnight on New Year's Eve, meanwhile, Grayscale CEO Barry Silbert celebrated bringing the company's total AUM across its various crypto funds to over $20 billion. Just one year ago, the figure stood at a mere $2 billion.

Grayscale crypto assets under management as of Dec. 31, 2020. Source: Grayscale/ Twitter

The company remains the largest institutional player on the Bitcoin scene, with its $17.475 billion in BTC far outstripping any other market participant. Newcomer MicroStrategy, while not an investment business, now controls 70,470 BTC ($2.06 billion).

Going forward, analysts predict that more demand for the fixed supply of "new" Bitcoin from miners will only serve to create a bidding war and push up the price. Sellers already faced stiff resolve from buyers in December 2020, when new all-time highs failed to produce significant long-lasting pullbacks.

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