Here’s how institutional investors ignited Bitcoin’s rally to $40,000

From the COVID-19 pandemic to mass-scale money printing and social unrest, 2020 was a wild year. Alongside a barrage of newsworthy events, Bitcoin (BTC) also turned in a standout year in the price category, ultimately rising from $3,600 to past $41,950, besting its 2017 all-time high of $19,892. 

A number of events, both crypto-specific and mainstream, appeared as catalysts for Bitcoin’s price action. Several crypto industry players weighed in on the events they believe affected BTC’s price action the most in 2020.

Morgan Creek Digital co-founder Anthony Pompliano labeled Bitcoin’s halving as the event with the greatest effect on the asset’s price action, according to his comments to Cointelegraph. “The incoming daily supply decreased and demand has increased significantly, which has led to an increase in the USD price,” Pompliano said.

Bitcoin’s halving occurred on May 11, 2020. The third such event since the asset’s launch in 2009, BTC’s halving resulted in miners receiving 6.25 BTC for block rewards instead of 12.5 BTC. Previous Bitcoin halvings brought price declines followed by sideways price action, although tremendous upswings eventually occurred after each halving.

The event in 2020 was no exception, as Bitcoin soared past record highs several months after the May event. The Bitcoin Stock-to-Flow model from analyst Plan B serves as a popular forecasting tool in the crypto space. The model predicts increasing future BTC prices based on halvings decreasing the asset’s incoming supply.

Pierce Crosby, general manager for crypto asset charting platform TradingView, told Cointelegraph about three developments that he believes impacted the value of Bitcoin the most in 2020. The first aspect he noted: “Consumer continued adoption, apparent in Coinbase’s planned IPO.”

Major United States-based crypto exchange Coinbase recently filed with the Securities and Exchange Commission for approval to conduct an initial public offering. The move would take the company public, resulting in tradable company shares on the mainstream U.S. stock market. The news actually coincided with moderately downward BTC price action on the day of the development, although Crosby’s comment appears to indicate the IPO as simply a result of underlying and ongoing demand.

The “institutional adoption, seen in MicroStrategy’s treasury re-allocation to Bitcoin” was another rousing event on BTC’s price in 2020 according to Crosby. A slew of large mainstream companies unveiled large Bitcoin positions in 2020. It all began as billionaire hedge funder Paul Tudor Jones revealed his Bitcoin position in May 2020.

In the latter half of the year, business intelligence firm MicroStrategy picked up hundreds of millions of dollars in Bitcoin. Other firms, such as Jack Dorsey’s Square and MassMutual, also publicized BTC purchases as part of a buying trend for big players.

Crosby also said, “the boom of DeFi and the corresponding leveraged products that were built by this space” affected BTC’s price in 2020. Last year, a bevy of DeFi solutions entered the crypto industry, giving participants new ways of leveraging their capital.

Resembling 2017’s ICO bubble at times, decentralized finance moved significant money around in 2020. Related assets saw dramatic price swings, while shady projects also surfaced during the boom. Meanwhile, in line with the hype, Bitcoin rode an upward price trend toward record levels after recovering from its COVID-19-related price drop in March.

Speaking of the pandemic, Cheds, a crypto trader and analyst on Twitter, said COVID-19 steered Bitcoin’s price significantly last year.

Cheds said:

“COVID by far had the biggest impact on $BTC #Bitcoin price in 2020, taking it down from 8K down to around 3K briefly.”

In March 2020, amid rapidly rising COVID-19 concerns and prevention measures, mainstream markets and crypto assets fell sharply in price. Bitcoin, however, rebounded more quickly than traditional financial assets. “Without a doubt, it sped up the process of finding a bottom, and since then, we have ripped back up to all-time highs, helped along by news of institutional investment,” Cheds said of the pandemic.

“Events like the public purchases of MicroStrategy and the addition of $BTC to PayPal’s arsenal have added a veneer of legitimacy that was missing, and help pave the way for even more of these types of investments in 2021,” Cheds added. PayPal unveiled the addition of multiple crypto assets to its platform back in October.

2021’s rally is driven by fundamentals, not FOMO

When asked what events had the least effect on Bitcoin’s price, Pompliano said, “most people’s opinion on Twitter,” with a smile. Meanwhile, Crosby pointed toward a detachment of Bitcoin from the political arena. “Very little impact came from politics this year, which is a substantial difference versus previous years,” he said. “We expect the impact of governments to be more visible with Bitcoin in 2021.”

Rounding out the year, the U.S. government proposed a ruling to monitor self-custodied crypto-asset wallets, for which the short comment period recently ended. The SEC also filed a movement against Ripple and its XRP asset in late-December. Both events could signal the beginning of increased government involvement.

Pompliano has often called Bitcoin a non-correlated asset when it comes to other financial instruments. An October 2020 report from Fidelity lends validity to such a view, concluding that Bitcoin holds virtually zero correlation to the price action seen across other markets.

Over the course of 2020, the world gave Bitcoin’s price plenty of headlines to react to. Some news events seemed impactful, while others did not, although definitively proving any direct correlation may be impossible.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.