19.04.2024

How much do you need to invest in Bitcoin for its value to rise by 1 percent?

Bitcoin has more than doubled since the beginning of 2021. This has happened as institutions and retail investors are actively pouring fresh money into the market. Also, large rounds of investments from Tesla and MicroStrategy played a large role in the growth of the cryptocurrency.

Analysts at JPMorgan Chase Bank estimate that large financial flows to Bitcoin are increasing by 20 percent in dollar terms this quarter compared to the previous period, while the volume of transactions between retail traders increased by 90 percent . Based on these numbers, it is possible to determine exactly how much money the digital asset market needs to make Bitcoin grow by exactly 1 percent.

To begin with, let’s note an important detail. After the release of the news about the investment of $ 1.5 billion in Bitcoin by Tesla, the cryptocurrency rose above 43 thousand dollars and set a new all-time high at that time. In this case, the growth of BTC was very sharp, but it was the result of positive news. Nevertheless, the investment of the giant company had a good effect on the reputation of the cryptocurrency and significantly improved its prospects in the future.

The bank’s analysts in the study, which will be discussed later, determined the impact on the market without taking into account the hype. That is, the purchase of BTC for the specified amount should shift the Bitcoin rate by 1 percent without the presence of Elon Musk and other famous people. It has to be simply due to the influx of new money into the industry.

How to raise the price of Bitcoin?

According to analysts at Bank of America, the price of Bitcoin is very sensitive to the demand for the cryptocurrency. Approximately $ 93 million in external injections is enough to make the BTC price rise by exactly 1 percent . At the same time, the analogous figure for gold is equal to $ 2 billion, which is about 20 times more, according to Bloomberg.

What does this mean? Compared to many traditional assets, Bitcoin, even after reaching a capitalization of a trillion dollars, remains a very young financial instrument. It is not so liquid, which means that even a relatively small amount of capital can lead to a hype around the rise in the value of BTC.

Another important factor is cryptocurrency price surges. According to Jeffrey Halley, senior strategist for the Asia-Pacific market at Oanda, they are provoked by an elementary lack of liquidity in the crypto market at certain points in time. That is, there are very few sellers or buyers at separate intervals of time, which gives the other side of the transaction the opportunity to seriously shake the price.

Recall that liquidity is the ability to sell an asset without significant changes in its value. Naturally, this is primarily relevant for large volumes of a certain asset. Essentially, a liquid product means a small difference between the price the seller wants to receive and the amount of funds that the buyer is willing to pay for it. If the asset is illiquid, this difference is too large, which means that the seller will not be able to sell the product at the desired price in the required volume, because there will be no trite buyers with such conditions. Accordingly, he will be forced to lower the price level until the buyers are satisfied. This is what distinguishes a liquid asset from an illiquid one.

We believe that Bitcoin falls into the first category, as it is the most popular cryptocurrency with the largest market capitalization. However, many small coins may indeed be illiquid. This means that investors will not be able to get rid of large volumes of them at a specified price and will be forced to go down.

It seems to us that the main detail in this study is not the amount itself, but the difference between it and that of gold. This proves that the market for Bitcoin and blockchain assets in general is still very young, so there is more than enough space for its growth. This will be especially true as more and more investors continue to realize the advantages of cryptocurrencies against the background of outdated gold.

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