According to analysts, the ongoing rally in Bitcoin (BTC) was primarily driven by institutions. Metrics such as CME’s Open Interest and Grayscale’s Assets Under Management (AUM) support this presentation.
At the same time, the gold market has seen large outflows in recent weeks. On November 24th, independent financial researcher Jan Nieuwenhuijs reported that gold had the largest weekly outflow in history.
Biggest gold outflow ever. pic.twitter.com/Re4o3PHrel
– Jan Nieuwenhuijs (@JanGold_), November 23, 2020
The timing of the increased outflow from the gold market is noteworthy as it occurs after large institutional investors entered the Bitcoin market.
Cointelegraph reported that Guggenheim Partners, which manages $ 275 billion in assets, is the youngest institution to show interest in Bitcoin.
What does this mean for Bitcoin?
In the medium to long term, the inflow of institutional capital into Bitcoin could lead to two main trends.
First, Bitcoin could see a more sustained upward trend that began in September. Institutions, especially those that gain exposure to BTC through the Grayscale Bitcoin Trust, are likely to accumulate BTC with a long-term strategy.
Some longtime Bitcoin investors who have had gold positions for a long time have also started to invest their capital entirely in BTC. Raoul Pal, the CEO of Real Vision Group, said:
“Ok, last bomb – I have a sell order tomorrow to sell all of my gold and to buy BTC and ETH (80/20). I don’t have anything else (other than a few bonds and a few dollars). 98% of my net cash. See, you can’t categorize me except #irresponsiblylong good night everyone. “
Second, fund managers say this could make Bitcoin even more dominant in the cryptocurrency market. Currently, Bitcoin’s market capitalization makes up 63.83% of the valuation of the global cryptocurrency market.
Kyle Davies, co-founder of Three Arrows Capital, one of the largest funds in the cryptocurrency space, said:
“Nobody goes for gold -> $ BTC -> alts This year there have been large wealthy inflows of USD or gold into BTC. This is not retail. These guys don’t get in waves. “
BTC’s short-term trend remains uncertain
Bitcoin has seen strong momentum over the past three months and hardly seen any major corrections.
During previous bull cycles, it is not uncommon for BTC to see 30% pullbacks, and the most recent run has yet to see a big dip. In the short term, however, on-chain analysts say BTC may be prepared for a deeper decline.
Ki Young Ju, the CEO of CryptoQuant, said whales are holding more BTC on the exchanges than in the past few months. This could indicate that whales may be selling more BTC in the foreseeable future. He said:
“The fact that whales are not withdrawing means that BTC is on sale. If whales believe the price will go up, they will take off a lot of BTC. I don’t know when it will start but when the price falls, whales react to the price and make high volatility. “
Whether institutional buyer demand and their time-weighted average price (TWAP) algorithms would counteract whale selling pressure would likely determine BTC’s short-term price cycle.