Amidst the most contentious presidential election in living memory, Bitcoin rallied to highs not seen since January of 2018. On the morning of election day, November 3, Bitcoin clocked in at $13,300. From here, the cryptocurrency quickly rose to almost $15,800 in the following days.
The announcement of Joe Biden's win resulted in a price drop to an intraday low of $14,350, but Bitcoin has since bounced back and looks set to close out the year with its strongest showing since 2017.
As with any significant leap in prices, a buzz of activity has lit up the cryptocurrency space. Opportunists flocked in en masse in the hopes of catching and riding the great wave all the way to its peak. On the other side we saw a large percentage of existing Bitcoin holders cashing out, converting their Bitcoin to fiat currencies, to lock in their profits from this bull run. As prices dropped and rose again, we saw converse reflexive buying and selling.
Below these meta-trends we can see three distinct subtends emerging.
Improved Onramps Hasten Capital Inflow
Known in the cryptocurrency trading community as “onramps,” there has been booming use of these mechanisms that enable investors to deposit a fiat currency and convert it into digital assets. Retail and HNW investors have scrambled to buy into Bitcoin on its way up.
The majority of the users rushing to onramp right now are from the U.S. and Europe, with payment processing company Simplex reporting a 63% rise in new users from these regions over the week beginning November 2. Simplex also noted a steady increase in purchases of around 25% from South and Central America when compared to the same time last month.
“In terms of what these new users are purchasing, the bulk of onramps purchase BTC,” Simplex CEO Nimrod Lehavi explained to me via email. “However, we’re also seeing more and more users purchase ETH and CEL. We’re also noticing that many more users are onramping than offramping and are choosing to keep their investments in digital assets.”
Bitcoin is not just flying upwards in price, it is also expanding outwards in terms of its base of token holders. It seems that the vast majority of these newly acquired holders have been inspired to enter the cryptocurrency arena to speculate on the price of the asset.
It remains to be seen how many of these newcomers will become active cryptocurrency users and how many will sell off their holdings as soon as rumblings of another crash begin to circulate.
Divergence From Stock Market Pricing
In recent years, we have seen the price action of Bitcoin remain relatively closely correlated to movements in the stock market. The first weekend of November, however, gave us our first glimpse of a significant divergence.
While stocks slid with the FTSE 100 shedding almost 20% of its value, Bitcoin rallied reaching well over $15,000.
You can really see the exact moment that bitcoin disjunct itself from the tech stocks on the one month graph. pic.twitter.com/S8ooh7lLY2— Mati Greenspan (tweets ≠ financial advice) (@MatiGreenspan) November 2, 2020
For most of the year, we have seen the major indices and the price of Bitcoin rise and crash in tandem with developments around coronavirus, but now it seems that Bitcoin has gone its own way. This, however, is not all good news for the burgeoning asset class.
On November 9, Pfizer Pharmaceuticals and BioNTech SE announced that their coronavirus vaccine was more than 90% effective in preventing Covid-19 for those who had no evidence of previously being infected. The news led to a Bitcoin sell-off, as traders began shifting capital to the US dollar and the US stock market.
“With the S&P 500 touching a new all-time high [on November 9] alongside news of a Pfizer COVID vaccine showing strong promise, it will be interesting to see how BTC behaves in the weeks ahead,” said Daniel Kohler, liquidity manager at San Francisco-based cryptocurrency exchange OKCoin. “For the past few weeks we were seeing a rise in BTC and S&P 500 correlations — with BTC trading at levels not seen since 2017, it will be interesting to see if that trend reverts or we continue to see outperformance.”
While Bitcoin seems, for the moment at least, to have lost its correlation with the stock market and the dollar, today’s price movements have indicated a close correlation between Bitcoin and gold.
The Convergence of Physical and Digital Gold
With rising uncertainty and fear in the air surrounding the outcome of the US election, people began rushing to gold and Bitcoin as potential store of value “safe haven” assets, producing a bump in the value of both.
Equally, the announcement of the potentially viable Covid-19 vaccine that took so much of the wind out of Bitcoin’s sails also hit gold hard, with the precious metal losing 5.7% on November 9.
Interestingly the correlation is not necessarily between gold and the cryptocurrency market as a whole. Rather, the “gold rush” of election week specifically manifested as a rush toward Bitcoin — often referred to as “digital gold.” This trend may well be driven by the influx of new holders who have been drawn to Bitcoin as the dominant cryptocurrency.
"Bitcoin could be an asset class that has a lot of attraction as a store of value to both millennials and the new West Coast money," said billionaire investor Stanley Druckenmiller. “I own many more times gold than I own bitcoin, but frankly, if the gold bet works, the bitcoin bet will probably work better because it's thinner and more illiquid and has a lot more beta to it.”
In today’s hectic market, buffeted by an array of macro forces, trends are often short-lived with global events deeply affecting the price movements of Bitcoin. Strong trends today may have flipped entirely by tomorrow. Either way, these are exciting times for Bitcoin.