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Possible Bitcoin shortage causes a spike in price

For the first time in three years, Bitcoin reached $19,000 on November 24, 2020, and crypto investment firm Pantera Capital points to PayPal’s massive purchase as the cause. The firm reports in their November investor letter that a possible shortage in Bitcoin’s supply is causing the increase in its price.

At the end of October, PayPal announced that they will begin offering crypto services. These services went live in the U.S. on November 12, allowing PayPal’s American users to buy, hold and sell top cryptocurrencies limited to Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC) and Bitcoin Cash (BTCH). With the PayPal app, customers can trade up to a maximum of $20,000 per week, a 100% increase from the initial limit of $10,000 caused by its massive demand.

Pantera Capital reports in their monthly blockchain letter that since PayPal started offering crypto services four weeks ago, the payments merchant has bought up to 70% of all newly minted Bitcoin. Additionally, Square’s CashApp also bought a large share of the total virgin Bitcoin. With their purchases combined, PayPal and CashApp have bought over 100% of all new Bitcoins. ‘If their growth persists, PayPal alone would be buying more than all of the newly-issued Bitcoin within weeks.’ says Pantera Capital’s letter.

‘When PayPal went live, volume started exploding. The increase in itBit volume implies that within four weeks of going live, PayPal is already buying almost 70% of the new supply of Bitcoins.’

Furthermore, the crypto investments firm argues that the rally today is more sustainable compared to the bull run in December 2017. ‘One of the main differences is the ease of investing in Bitcoin now— via PayPal, Cash App, Robinhood, etc.’ states the report from Pantera.

Purchasing Bitcoin had limitations in terms of trading limits and waiting time for verification processes during the 2017 rally. The emergence of new exchange sites and mainstream finance applications have made crypto services more accessible to people.

Other factors that are driving Bitcoin’s continuous climb in price are massive buys by institutional investors or whales, a decrease of supply in exchange sites, and volume trends. Exchange sites are drying out their crypto supply due to whales purchasing huge quantities of Bitcoin. Exchanges receive a significant amount of supply when investors sell their BTC. The lack of supply implies that more investors are choosing to keep their assets.

PayPal has over 300 million active users all over the world and their new crypto services are yet to be made available to their international customers. The company plans to extend its new services to foreign users by the first quarter of 2021. Analysts believe Paypal’s decision will drive mainstream adoption.

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