Why bitcoin’s blockbuster 2020 is different than the 2017 bubble

Bitcoin’s 225% rally to a record high this year may be seen as validation for the cryptocurrency bulls, but it has failed to fully erase the memory of December 2017. That’s when bitcoin (BTC-USD) crashed from a then-record of more than $19,000 to less than $14,000 in the span of a week. It proceeded to fall below $4,000 by the following December.

The dizzying heights of 2020 may feel similar to the giddy run of 2017 — but the landscape has entirely changed, said Meltem Demirors, chief strategy officer at digital asset manager CoinShares.

“2017 in many ways felt like 1999. In 1999, people didn’t know if they were buying Pets.com or Amazon.com,” she said in an interview with Yahoo Finance Live. “It was just a wild, frothy time and 2017 for many of us felt the same way. A lot of coins, a lot of names, a lot of capital flying around. This cycle is so different because the narrative is very focused on bitcoin.”

And bitcoin has built a cache that the litecoins of the world haven’t managed to match. Demirors, like many other crypto investors, pointed to the increasing profile of bitcoin among institutional investment managers, citing recent comments by Guggenheim’s Scott Minerd that bitcoin should be worth $400,000. JPMorgan analysts said a $100 million bitcoin purchase by insurer Mass Mutual “represents another milestone in the bitcoin adoption by institutional investors.”

This photograph taken on December 17, 2020 shows shows a physical imitation of a Bitcoin at a crypto currency “Bitcoin Change” shop, near Grand Bazaar, in Istanbul. (Photo by Ozan KOSE / AFP) (Photo by OZAN KOSE/AFP via Getty Images)

The search for return in a low-interest-rate world and the desire for diversification have been factors for institutional and individual investors alike. These are the same impulses driving a lot of this year’s trends, including the blank-check company boom.

“This is not just with bitcoin, right? We look at housing prices, all-time highs…Art auctions, all-time highs. Collectibles trading at all-time highs. People are looking for places to put cash in a zero interest rate environment, and they’re thinking about the long-term impact of taxes,” Demirors said.

But the skyrocketing price for bitcoin is giving pause even to some long-term bulls, like Matt Maley, chief market strategist at Miller Tabak. He said in an interview that he’s skeptical of Demirors’ view that volatility has been relatively low this year.

“That’s like saying the Jets are a great team because they won one game. [Bitcoin] is getting very close to being as overbought as it was back at the 2017 high,” he said. “It’s also a liquidity-based story, the most recent rally. When that dries up, you can easily pull back 30%.”

Maley thinks after that pullback, investors could have a “much better opportunity” to buy bitcoin.

Julie Hyman is the co-anchor of Yahoo Finance Live, weekdays 9 a.m.-11 a.m. ET.

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