Research

2020: The Year Bitcoin Went Mainstream

By   Christopher Bendiksen 14th January 2021

It is no exaggeration to say that 2020 was an absolute rollercoaster of a year for Bitcoin. Not only did asset prices swing by the largest—by far—nominal amounts the market has ever seen, but the system also weathered stunning macroeconomic events such as the COVID-19 crisis while simultaneously executing one of its rare 4-year supply halving events.

Amidst these momentous events, and likely also by no small amount fuelled by them, this was the year where Bitcoin made the leap from a largely retail-driven speculative asset, to its new role as a hotshot store-of-value asset among institutional investors.

Keeping up with all the important events in such an eventful year is no small challenge, so at CoinShares Research we have, as we love doing for our clients and readers, done the legwork for you and collected some of the most momentous moments of 2020 for your reading pleasure. Enjoy.



January, Opening Price $7,200:

  • Bitcoin entered the year near local lows, trying to shake off a bit of a hangover from the Libra-driven price rally of 2019. At the start of the year, prices were down almost 50% from its previous June peak.
  • Underneath the surface though, fundamentals were steadily improving, and January saw a string of hashrate all-time highs, signalling strong ongoing investment into the mining sector.
  • The first signs of bulge-bracket acceptance of the asset class started to show, with Deutsche Bank releasing a report stating that digital currencies had the potential to go mainstream — but not necessarily bitcoin.


February, Opening Price $9,400:

  • After a strong January, February kicked off with prices already 30% up on the year. Intra-month volatility then briefly lifted prices up above the psychological $10,000 mark, before dropping back to $8,600, causing the first red month of 2020.
  • The halving hype cycle began in earnest this month with Coinbase pointing out in a research piece that bitcoin would soon be scarcer than gold.
  • Simultaneously, the Commodity Futures Trading Commission (“CFTC”), not wanting the US to fall behind in monetary innovation, called on the Fed to develop a digital dollar.


March, Opening Price $8,650:

  • March price development began as a continuation of the slow sell-off initiated in mid-February. At this point, large levels of leverage had been deployed both in spot, derivatives and bitcoin-collateralised lending markets.
  • When the COVID crisis hit global financial markets, the general flight to dollars had a knock-on effect on bitcoin, causing waves of rapid deleveraging in several highly levered sectors of the bitcoin market (more detail here).
  • Between March 12 and 13, a series of liquidation cascades pushed the bitcoin price from around $8,000 all the way down to $3,600. This was the largest nominal two-day drop in bitcoin’s history, and the largest percent drop since 2013.
  • Alongside the price drop, hashrate tumbled as the highest cost-basis miners found themselves cashflow negative and were forced off the network.
  • Impressively though, less than a week after bottoming around the $3,600 level, prices rebounded to almost $7,000 in a classic V-shaped recovery.


April, Opening Price $6,450:

  • Still reeling from the volatility of the March COVID crisis, April prices spent most of the month range-bound between $6,000 and $7,000.
  • In the background, celebrity financial pundits were increasingly singing bitcoin’s praises, with the particularly notable instance of Social Capital founder Chamath Palihapitiya claiming on US national television that each bitcoin would eventually be worth millions.
  • Price action really began picking up again towards the end of the month with media buzz around the impending Bitcoin reward halving significantly increasing.


May, Opening Price $8,750:

  • In May the halving-narratives were the talk of the town. All the classic takes, even those that had been debunked over and over again such as the ‘mining death spiral’ made their way back into public discourse.
  • CoinShares Research summarised 5 of the most popular halving theories, analysed them on merit, decisively debunked some, and then correctly predicted not only the outcome of the halving, but also its likely effect on bitcoin markets in the mid- to long term.
  • On 8 May, Paul Tudor Jones published ‘The Great Monetary Inflation’ recognising bitcoin’s potential in the midst of the present macroeconomic climate — a piece that set the stage for what would later develop into a symphony of respected financial celebrities voicing their support for bitcoin and its potential as money.
  • Somewhat anticlimactically, the halving itself took place on 11 May right on cue at block 630,000. The mining reward was cut from 12.5 btc/block to 6.25 btc/block. The final block at 12.5 btc/block carried the message “NYTimes 09/Apr/2020 With $2.3T Injection, Fed's Plan Far Exceeds.”


June, Opening Price $9,450:

  • Bitcoin’s summer kicked off with a near immediate break of the psychologically important $10,000 level. The enthusiasm was however short lived, and bitcoin spent the remainder of June in a relatively tight band in the lower $9,000s.
  • Although a quiet month in many respects, significant yet silent changes were taking place. Notably among these, Bank of America, through a change in documentation began treating bitcoin as a cash equivalent and subsequently enabled customers to purchase it with their credit cards.


July, Opening Price $9,100:

  • Price-wise, most of July was as slow and uneventful as the previous month and the first three weeks went by in the same exact fashion as June with prices trading in the same tight low-$9,000’s band.
  • On 15 July, 130 profile accounts on Twitter, including Joe Biden, Barack Obama, Jeff Bezos, Elon Musk, and Kanye West, were held ransom by hackers to obtain bitcoin, bringing much publicity and attention to the asset.
  • In a highly positive US regulatory development, the Office of the Comptroller of the Currency on 22 July announced that they would authorise federally chartered banks to custody bitcoin from that day forward.
  • Prices immediately reacted and in less than a week the $11,000 level had been punctured in several intra-day sessions.


August, Opening Price $11,350:

  • August marked the proper beginning of the corporate and institutional inroads into bitcoin markets. Leading the charge, US listed software provider MicroStrategy announced on 11 August that it was adopting bitcoin as its main treasury asset.
  • The bullish news continued as George Ball of Sanders Moss Harris introduced bitcoin as a safe haven asset, and Dave Portnoy, founder of media conglomerate Barstool Sports, very publicly bought bitcoin.
  • Meanwhile, the Bank of International Settlements published a report highlighting the rise of CBDC initiatives across the world, highlighting ongoing efforts at the Public Bank of China, Sveriges Riksbank, and Bank of Canada.
  • While excitement was brewing, prices still remained relatively flat throughout the month, again trading in a relatively tight range, but this time between $11,000 and $12,500.


September, Opening Price $11,650:

  • The September price environment got off to a terrible start. Having opened the month around the $11,650 level, prices immediately started dropping, and within the first week of the month they had fallen back below the $10,000 mark.
  • Bitcoin garnered more attention from the realm of traditional financial service with bullish sentiment from Morgan Stanley and bearish sentiment from Swiss investment bank UBS.
  • In other news, bitcoin exchange Kraken was approved for a banking charter in Wyoming, and the state’s Senate candidate Cynthia Lummis pronounced her belief in bitcoin as an alternative asset. Adding to their corporate treasury,
  • Adding to the fray, MicroStrategy bought 16,796 additional bitcoins for its corporate treasury.


October, Opening Price $10,800:

  • Opening up at a lower price than the previous month, October was to be the foothills of the Q4 run-up in the bitcoin market. After starting right below the $11,000 level, prices began a steady climb which was sustained throughout the entire month, culminating with a brief puncture of the $14,000 mark — a level not seen since late 2017.
  • Widespread bullish sentiment kept brewing among traditional institutions with Citibank publishing “Two Paths to Tomorrow”, denoting a future of either bitcoin or CBDC mainstream adoption; Fidelity delving into the case for bitcoin as an alternative investment in modern portfolios; and, JP Morgan declaring Square’s bitcoin buy a “Strong Vote of Confidence” and exploring digital asset custody.
  • Less heralded amid the cacophony of market news, on the bitcoin developmental stage huge strides were made with Taproot/schnorr improvements merged into Bitcoin Core — the open source software package encoding the Bitcoin protocol. This addition enables a whole host of improved privacy, transaction throughput capacity, and business logic capabilities for the Bitcoin protocol while simultaneously making life much easier for developers interacting directly with the Bitcoin software.


November, Opening Price 13,800:

  • The floodgates properly opened in November as price increased from $13,800 to more than $19,650 and bitcoin’s market cap hit $350bn, surpassing that of JP Morgan Chase.
  • With large and sustained price increases, bitcoin experienced an avalanche of activity. Ambitious price targets emerged from professionals at Citibank, Bloomberg, and Ark Invest, all presenting lofty valuations ranging between $170,000 and $500,000.
  • Legendary investors Bill Miller and Stan Druckenmiller joined the ranks of public bitcoin supporters, presenting strong investment cases amid the increased likelihood of continued adoption. Other notable pundits Ray Dalio and Nouriel Roubini were forced to reverse their opinions from very public prior bearish beliefs about the asset’s capabilities and likely future.
  • Executives Jim Reid, Ali Mizani Oskui and Rick Rieder of noteworthy financial outlets Deutsche Bank, FiCas AG and BlackRock each chimed in on the increased demand for bitcoin, with Reider recognizing bitcoin’s potential to take over gold.
  • Further enthusiasts joined to support bitcoin’s future development. Senator-elect Cynthia Lummis advocated for bitcoin education in Congress, PayPal enabled customers’ access to crypto assets, and veteran Bitcoin developer John Newberry launched Brink, an organization for funding bitcoin’s open-source developer community.
  • Lastly, Guggenheim Partners revealed its plan to invest up to 10% of its assets under management into Grayscale’s GBTC bitcoin trust.


December, Opening Price $19,700:

  • November’s market heat has continued into December. From its already high-flying opening of $19,700, bitcoin decisively broke through its historical barrier of $20,000 to reach all-time highs of almost $24,000 on 17 December.
  • Ray Dalio affirmed his position on bitcoin as a sound alternative to gold, S&P Dow Jones announced the upcoming launch of crypto indices in 2021, and AllianceBernstein positively changed its mind on bitcoin’s role in investors’ portfolios.
  • Otherwise, institutional investment continued -- insurance giant Mass Mutual bought $100m worth of bitcoin, Microstrategy issued senior convertible notes worth $650m to accrue more bitcoin, and Ruffer Investment publicly announced a bitcoin allocation.
  • Adding to the chorus of high-flying bitcoin valuations, Guggenheim announced that their fundamental analysis suggested a fair bitcoin value of $400,000.
  • The hefty price action continued through the second half December, with the price closing at $28,950—a monthly increase of nearly 50%.
  • On an annualised basis, bitcoin clocked another stellar year with a 302% year-on-year price increase, by far the best performing asset class of the year.




Disclosure

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