Cryptocurrency prices have had a third week of volatility. To understand the likely floor of these swings, I analyse the price levels that attracted demand from different types of investors in the past, so are likely to generate demand if they were reached again.

Investors who acquired at least 1k bitcoin each since the end of November have bought 1.7 million bitcoin in total at an average cost of $35k per bitcoin. This recent and rapacious willingness to buy at this price level likely puts a floor on the bitcoin price of at least $35k.

The market has changed radically since the end of Nov, when new large investors held 1M bitcoin at an average cost of $14.8k. So large investors who have entered since hold more bitcoin at more than double the cost, so there is a far stronger floor to the price than ever before.

The realised gain of bitcoin between entering and exiting exchanges is $78 billion over all time. That is to say, if all the bitcoin ever deposited on exchanges was bought immediately and then only sold when it was withdrawn, the profit from that trade so far would be $78 bn.

54% of that $78 billion gain has been made in the 15 weeks since the start of November 2020. 25% was made in Q4 of 2017. So we are in the second phase of people rapidly realising large USD gains from bitcoin, and the profits in this phase are twice the size of the last phase.

#bitcoin is $41k+ because new investors keep buying but now have to buy from long term investors, who need high prices to sell. The bitcoin supply curve is now very steep. Until mid-Nov traders met demand but since then long term investors have sold 1M bitcoin to new investors.

Over the holiday period, buyers faced a market with few sellers, with recent bitcoin inflows to exchanges below the 2020 average despite record prices. However inflows are rising these last few days, risking price pressure, you can track inflows live at markets.chainalysis.com/?ran…

Much of the buying appears to have been in fiat. Tether inflows to exchanges in December were only enough to purchase 34% of bitcoin inflows, below the 39% average for 2020. So there was an infusion of cash from outside of the cryptocurrency ecosystem.

Whales are key buyers. BTC withdrawals from exchanges of <$10k of BTC fell 22%, while withdrawals of $10k+ increased by 9% and $1M+ by 32% in Dec relative to the prior 3 mth avg. Whale wallets, holding 1k+ BTC, received 731k BTC from exchanges in Dec, 1/3 of exchange withdrawals.