Inside Bitcoin's bull run

On February 19, Bitcoin's market cap exceeded $1 trillion as prices approached $55,000. From Wall Street to the global picture, understand the forces at work with our special report on Bitcoin's latest bull run.

A bull on a calendar charging towards a graph that goes up

Updated on February 19, 2021:

Just over two weeks ago, we published a comprehensive special report on Bitcoin’s current bull run. A lot has happened in those two weeks. Today, Bitcoin hit a new all-time high close to $55,000 — driving the original cryptocurrency’s total market capitalization north of $1 trillion. On February 8, via a SEC filing, Tesla revealed a $1.5 billion Bitcoin investment — and said it would begin accepting the cryptocurrency in payment for its cars. (Tesla’s move came in the wake of founder Elon Musk briefly changing his Twitter bio to “#bitcoin” during the previous week’s memestock frenzy.)

Publicly traded MicroStrategy, which helped spark the current bull run — and which you’ll read more about below —  hosted a “Bitcoin for Corporations” event, with some 1,400 representatives from a huge range of major firms attending.

And the news has just continued to break. Visa and Mastercard announced that their networks would begin accepting crypto. Historic firms including Morgan Stanley and Bank of New York Mellon Corp (the nation’s oldest, which plans to hold and transfer the cryptocurrency for its clients) revealed new Bitcoin plans — signalling, in the Wall Street Journal’s words, a “broader acceptance of the once-fringe digital currency” among traditional financial giants.

So keep all these new developments in mind as you read the story below — which explains just how Bitcoin got to to this moment, and where it might be going next. 

Published on January 29, 2021

Late in 2020, in the normally quiet week between Christmas and New Year, a major New York hedge-fund manager made headlines throughout the crypto world. Bitcoin, he proclaimed, would hit $50,000 in 2021. To many observers, it was an implausibly high number. After all, in Bitcoin’s twelve year history, it had never gotten even halfway there.

But a growing group of investors on Wall Street and beyond were feeling bullish. Prices had been ticking steadily upwards since October — without attracting much attention in a news cycle that included a pandemic and a presidential election. On December 16, its value surpassed the $20,000 mark, breaking the all-time high set in late 2017. And then it just kept climbing. In under a month, prices more than doubled, rising to a new peak of nearly $42,000 on January 8, 2021.

The last Bitcoin bull run, in late 2017, was fueled substantially by individuals. This time it was powered by money from Wall Street and beyond. Publicly traded companies like Square and MicroStrategy made major Bitcoin bets; funds focused on crypto launched and grew; and new infrastructure (including Coinbase Institutional) made buying and storing crypto a viable path for corporations. 

So as 2020 ticked over into 2021, individual traders and institutional giants alike considered the likely outcome. Would Bitcoin follow its old boom-bust pattern? Or was this time different?

A tale of two bull runs

Two bulls charge separate directions

As anyone who owned Bitcoin in December 2017 remembers, the peak was fleeting. One minute, celebrities were tweeting Bitcoin memes and every newspaper in the world was trying to explain crypto to their readers. The next, prices slipped, and (after a brief January bounce) fell off a cliff — bottoming out around $3,600 in autumn of 2018. 

As of late January 2021 at least, the bull market that began in October 2020 looks different in some key ways. After climbing steadily throughout November and December, prices spiked in the first weeks of 2021, reaching territory north of $40,000 for the first time ever (not $50,000, but closer than many would have predicted).

In the weeks following the peak, however, the story was one of volatility. On January 8, Bitcoin lost nearly 30% in a single day only to rally back the next. And while investors and economists are divided about whether Bitcoin is headed to bubble territory or if this is just the beginning of greater things, the prevailing story remains. Since the start of 2020, Bitcoin has been one of the fastest-growing assets — climbing nearly 338% between January 1, 2020 and January 27, 2021. As of January 27, 2021, Bitcoin had become the 12th most valuable asset in the world by market capitalization — surpassing large banks and nearing the value of the world’s biggest technology companies.

When Wall Street met crypto

If you want to understand how Bitcoin’s value grew as quickly as it did, there are some obvious places to look. One would be the Grayscale Bitcoin Trust (GBTC), which is a publicly traded fund that gives stock market investors exposure to Bitcoin without having to hold it themselves. Instead, the fund buys Bitcoin, and investors buy shares in the fund. 

As Bitcoin climbed, GBTC climbed right along with it. The dollar value of assets under management in the fund grew from around $2 billion in December of 2019 to more than $15 billion just a year later.

Another place to look for clues is a tech company that, unless you’ve been following Bitcoin’s rally, you probably haven’t heard of. MicroStrategy is a publicly traded business analytics firm based in Virginia that began to make a major bet on crypto in August 2020, eventually acquiring more than 70,000 bitcoin at an average price of $15,964. By January 2020, MicroStrategy’s Bitcoin holdings were worth well over $2 billion. “I didn’t buy it to sell it.” CEO Michael Saylor said in November. “Ever.”

Until recently, the conventional wisdom on Wall Street had been that Bitcoin wasn’t worth the trouble. Infrastructure around huge crypto investments wasn’t considered robust enough — and even if you were able to safely acquire a large amount of Bitcoin, you’d have to figure out how to store it. But that had begun to change. And as prices surged, clarity from regulators and new paths for corporations to invest have resulted in firm after firm warming to crypto. Throughout the fall and into the new year, news around institutional investment seemed to break on a near daily cadence.

  • In October 2020, payment processor Square (which offers Bitcoin trading through its Cash App) published a Bitcoin Investment Whitepaper, explaining the process behind their purchase of 4,709 bitcoin at an aggregate price of $50 million. 

  • In November, PayPal began offering limited Bitcoin trading to U.S. account holders, with plans to roll it out to all 350 million-plus users worldwide. Also that month, real estate billionaire Ricardo Salinas, Mexico’s third-wealthiest person, invested 10% of his liquid portfolio into Bitcoin.

  • Global banks including DBS, Standard Chartered, and Northern Trust began offering Bitcoin trading or custody services in December. Fidelity — the first traditional firm to embrace crypto — reported that its Bitcoin custody business has been “incredibly successful.”

  • In December, a Connecticut-based fund called One River Digital Asset Management announced commitments that would “bring its holdings of Bitcoin and Ether to about $1 billion as of early 2021.” 

  • Also in December, New York-based hedge fund Guggenheim Partners disclosed in regulatory filing plans to invest up to $530 million in the Grayscale Bitcoin Trust. Not long after, MassMutual, one of the world’s oldest insurance firms, purchased $100 million worth of Bitcoin

  • As another indication of increasing corporate interest, the number of regulatory filings mentioning Bitcoin grew for the third year in a row.

Bitcoin vs. inflation

Over the course of 2020, a growing number of Wall Street’s biggest names began adding Bitcoin to their portfolios. Their general argument was crystalized in a report issued by Paul Tudor Jones in May, which theorized that Bitcoin would continue to gain value as central banks in the U.S. and abroad increased both debt and circulating currency in an effort to stabilize their economies during COVID. The result, these investors believed, would be accelerating inflation of fiat currencies including the dollar — making Bitcoin (which was designed to be resistant to inflation) a useful hedge.  

  • “We are witnessing … an unprecedented expansion of every form of money unlike anything the developed world has ever seen,” Tudor Jones wrote. “[Bitcoin is] literally the only large tradeable asset in the world that has a known fixed maximum supply.” (There will never be more than 21 million Bitcoin.)

  • Stanley Druckenmiller, Jones’ fellow hedge-fund billionaire and former Bitcoin skeptic, augmented his gold holdings with Bitcoin. “The Bitcoin bet will probably work better,” he said. “With each passing day it picks up more of its stabilization as a brand."

  • In his latest investor letter, Bill Miller — who famously focuses on undervalued assets seeking long-term gains — noted that Bitcoin has outperformed all major asset classes over the past decade: “Its market capitalization is greater than JP Morgan and greater than Berkshire Hathaway,” he wrote. “And yet it is still very early in its adoption cycle.” 

  • Miller also noted another key trend: Companies including the aforementioned Square, MassMutual, and MicroStrategy moving cash off of their balance sheets and into Bitcoin rather than seeing it lose value via inflation.

"[Bitcoin's] market capitalization is greater than JP Morgan and Berkshire Hathaway. And yet it is still very early in its adoption cycle." -value investor Bill Miller

The global picture

Bitcoin has also been gaining traction in parts of the world where its potential benefits are even more clear than they are on Wall Street. To get a sense of how Bitcoin might function as a global store of value, consider its performance against major currencies. Bitcoin’s greatest gains were against highly inflationary developing-world currencies: the Mexican peso (MXN), Nigerian naira (NGN), South African rand (ZAR), Turkish lira (TRY), Brazilian real (BRL), and Argentine peso (ARS).

A recent survey of internet users between the ages of 16 and 65 (conducted by consumer-data research firm Global Web Index) showed that respondents in developing economies have some of the highest cryptocurrency adoption rates in the world. 

Likewise, many of the same countries’ currencies — including the Nigerian naira, the South African rand, and the Argentine peso — saw surging Bitcoin volume on peer-to-peer exchanges (which allow users to trade directly with each other).

Of course, Bitcoin’s global potential in an inflationary world isn’t lost on the Wall Street funds that have increased their positions during the bull run. In a recent investment deck, the Skybridge Bitcoin Fund (which recently invested $182 million into Bitcoin) noted Bitcoin’s global potential as a major factor around its potential growth: “While Americans take U.S. dollar stability for granted, most people throughout the globe confront or have confronted massive currency collapses.”

"While Americans take U.S. dollar stability for granted, most people throughout the globe confront or have confronted massive currency collapses." - Skybridge Bitcoin Fund

What comes next?

That, of course, is the impossible-to-answer question. Will the volatility we’ve seen in January snowball into a bigger dip? 

A recent survey of fund managers found that more than half were experiencing some level of bubble anxiety. And for all the recent talk of Bitcoin replacing gold as an enduring store of wealth, it’s hard to imagine most people being comfortable with swings of nearly 30% in a day. Or as JP Morgan analysts put it on January 5, “Bitcoin’s volatility would need to drop substantially before it can match gold in terms of market value.”

Not that there isn’t plenty of evidence for the optimists, including a working paper by the Bank of England that points to a number of scenarios where volatility may fall as Bitcoin matures, including the growth of cash-settled futures and the Lightning Network, which enables transactions as low as one satoshi (.00000001 BTC). 

The Bitcoin protocol is also gaining strength, with the number of nodes on the network hitting two-year highs in December. As of January 2021, there are nodes in more than 96 countries around the world, making the blockchain highly resistant to censorship attempts by any government or other entity.

The Bitcoin ecosystem has at least 70% more developers than it did three years ago, while the average number of active addresses on the network has reached all-time highs.

News around institutional investors embracing Bitcoin has continued to emerge. In late January, the Bank of Singapore issued a report which pointed to the cryptocurrency’s potential as an inflation-resistant rival for gold. The same week, Bridgewater Associates founder Ray Dalio described Bitcoin as an increasingly viable alternative to gold (and as “one hell of an invention”).

And if you want to know what Wall Street thinks, you can always look to the futures markets. Open interest for cash-settled Bitcoin futures on the CME have recently peaked above $2 billion. 

Whatever happens with Bitcoin’s price in the near term, the era when crypto was dismissed by Wall Street appears to be gone. In the third week of January, BlackRock — the world’s largest asset manager — announced that two of its funds can now trade in Bitcoin futures. Noting strong customer demand, chief investment officer Rick Rieder said, “It’s going to be part of the asset suite for investors for a long time."

"[Bitcoin] is going to be part of the asset suite for investors for a long time." - BlackRock CIO, Rick Reider

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