The Bitcoin price hit its record high in December 2017, when its price peaked at $19,892 on Coinbase. In South Korea, BTC surged to as high as $23,000 due to a regional premium. The volume of major cryptocurrencies in April and May is nearing levels unseen since BTC rose to an all-time high 30 months ago.
On Binance, for example, the monthly volume of Bitcoin to USDT in April 2020 surpassed 2.528 million BTC. In January 2018, Binance recorded a monthly volume of 816,000 BTC.
A similar trend is being shown by Coinbase. The U.S.-based exchange processed merely 118,000 BTC less in April 2020 than in January 2018, despite the price of Bitcoin being down by 48 percent compared to that time.
The high volume in the spot market of Bitcoin indicates that actual retail investors are accumulating BTC, leading the recovery of BTC to $10,000 following its unexpected plunge in March.
Spot exchanges like Bitstamp, Binance, and Coinbase, saw significantly higher weekly volume from March to April in comparison to the first two months of the year.
The term spot market is used to describe exchanges that facilitate crypto-to-fiat or crypto-to-stablecoin trades with no borrowed capital. On spot exchanges, investors cannot use additional leverage to invest in Bitcoin with debt. Hence, spot volume typically reflects organic demand.
The recent Bitcoin rally is driven by actual user demand, not by inflated buy orders as seen in December 2019. In February of this year, the Bitcoin price reached $10,550 on BitMEX, seeing a strong recovery from dropping as low as $6,410 in December 2019. But at the time, Bitcoin traders expressed concerns towards the evident use of spoof orders to sustain the short-term momentum of BTC. Spoof orders appear usually in the form of buy orders. They are placed on futures exchanges in an attempt to continuously drive up the price of Bitcoin. When the price goes down, the orders are pulled, making it an inorganic uptrend.
The problem with the use of manipulated buy orders is that it leaves Bitcoin vulnerable to a steep correction. The Bitcoin price saw a steep fall in late February, dropping by 47 percent initially to around $5,400. The BTC additionally dropped to as low as $3,600 on March 12, as economic consequences of the coronavirus pandemic led to a drop in appetite of investors in high-risk assets.
From March to May of this year, the futures exchange played a lesser role in the rally of Bitcoin from $3,600 to $10,000. The weekly volume of BitMEX, for instance, was lower throughout the entire run up than in the two-month span from January to February.
As spot volume recovered faster than the trading activity in the Bitcoin futures exchange market, institutional demand began to soar in tandem.
Grayscale reported that 88% of inflows into its investment vehicles came from institutions. The firm operates the Grayscale Bitcoin Trust, a publicly tradable investment instrument that allows institutions and accredited investors to allocate their capital into Bitcoin. On April 30, the Grayscale Bitcoin Trust surpassed $3 billion in assets under management.
The Q1 report of Grayscale reads:
“Institutional investors, primarily hedge funds, continued to be the primary source of investment capital in 1Q20 (88%), with an even higher share than T12M (79%).”
The report also noted that the trend could increase the momentum of Bitcoin among legacy financial institutions.
“Our institutional investor segment also continued to expand, a trend that could gain additional momentum as legacy financial institutions reinforce the investment thesis for the asset class,” said Grayscale.
This is all a bullish sign. Institutions typically invest with a long-term investment thesis or strategy in place. Given that the data shows the recent upsurge of Bitcoin was driven by organic demand from both individual and institutional investors, there is a stronger foundation to support an extended resurgence over the coming months.