After months in the doldrums, Bitcoin is finally on the rise, much to the delight of cryptocurrency investors. But is this a short-term blip or an indicator that we may be at the start of a bull market? We look at the reasons for Bitcoin’s recent surge and investigate whether everything is quite as it seems...
In December 2017, one bitcoin was worth almost $20,000. Cryptocurrency hit world headlines and people rushed to buy before the price skyrocketed further. Some people made a lot of money.
Six weeks later, many people were staring in horror as the value of their Bitcoin investments plummeted.
If you’ve been following cryptocurrency trends for a while, you’ll know that prices are notoriously volatile. Still, 2018 was a tough year. Early optimism about the dip in prices, with predictions of Bitcoin highs of $25,000, $40,000 or even $100,000 by the end of the year, gradually died away as autumn loomed. Bitcoin did rally a few times in the first part of the year to hit the $9,000 and $8,000 mark before dropping in November to a low point of just under $3,200.
Although the price of Bitcoin may not have reflected it, a lot of positive things happened in the world of cryptocurrency in 2018. It began to be taken seriously by national governments and regulators, a growing number of big businesses explored how crypto can be incorporated into their business models, and mainstream awareness and adoption increased. Cryptocurrency was even featured on Coronation Street – surely that means it’s made it?!
Then, on the 2nd April, the leap the crypto community has been waiting for finally happened. Bitcoin jumping almost $1,000 in 60 minutes and continued rising to a peak of $8,300 just over a week ago. Is this a sign that Bitcoin is finally emerging from its long winter? Let’s take a look at the evidence...
Markets naturally swing from bearish to bullish and back again. While it may have taken a little longer than initially predicted, the indicators that the bearish market of 2018 might be drawing to an end were there.
Although it may feel as if it’s gone on forever, Bitcoin has experienced bad bear markets before.
One of the most prolonged was back in 2013 when the FBI shutdown of the Silk Road led to a 410-day decline in Bitcoin price. It’s not even the worst bear market in terms of depreciation – that dubious honour goes to Bitcoin’s first bear market in 2011 where the value fell more than 93 per cent. So while Bitcoin has been officially declared dead more than 350 times, historical trends suggested there was still some life in the world’s original cryptocurrency.
According to technical analysts, bitcoin’s charts showed clear signals that it had reached the bottom of the market.
In late February, bitcoin’s 50-week moving average dropped below the 100-week moving average in what’s known as a bearish crossover. This was the first time this has happened in almost four years and was seen by many analysts as an indication that bitcoin’s price may have bottomed out. (Moving averages are based on past data so lag current market activity.)
This was followed by a “golden cross” on April 23rd, where the 50-week moving average crossed the 200-day moving average, representing a long-term move from a bearish to a bullish trend.
There have been behind the scenes murmurings, followed by more public murmurings, of institutional interest in Bitcoin for a while.
Between December and April, the percentage of market share accounted for by institutional products almost doubled.
Then at the beginning of May (before the recent peak), Bloomberg reported that Fidelity Investments, a well-respected name on Wall Street, was planning to offer cryptocurrency trading to institutional investors within the next few weeks. Trusted custodians offering cryptocurrency products to clients is a positive sign for the market and could have contributed to Bitcoin reaching its highest price for 10 months. Perhaps 2019 will be the year we finally see Wall Street adoption of cryptocurrency.
Diminishing supply increases demand, and there have been suggestions that Bitcoin’s built-in supply control mechanism may have contributed to the market swing.
The upper limit for Bitcoin supply is 21 million, with the final Bitcoin being mined in 2140. To help battle inflation and control supply, Satoshi created something called “the halvening”. This may sound like some kind of cult ceremony but it’s simply a halving of the reward paid to miners who add blocks to the Bitcoin blockchain. The next halvening is due to take place in May 2020 when the reward for mining a block will drop from 12.5 BTC to 6.25 BTC.
The last two halvenings, in 2012 and 2016, were preceded by a 12 to 18-month bull run. If we assume this pattern is likely to repeat, then it adds weight to the argument that the recent rise is the start of a bull trend.
As some people have pointed out, there could be another reason behind this recent rise – market manipulation.
More specifically, fingers have been pointed at the recent Bitstamp market sell-off which took place on May 17th, when a single trade of 5,000 bitcoin led to a flash drop of 20 per cent in the price of Bitcoin in less than thirty minutes. Rumours have also circulated about whether the sudden jump in the Bitcoin price in April was caused by a single large buy order.
Market manipulations have plagued Bitcoin’s history, but there’s no evidence yet that the recent sudden price changes were a determined effort to manipulate the Bitcoin price. In fact, some analysts have suggested it was simply a periodic market correction.
Following the crash, Bitcoin rebounded quickly to its previous price point and has since fluctuated around the $8,000 level.
Most altcoins are traded against Bitcoin not fiat currency, and in the past, it’s been common for altcoins to drop in value when Bitcoin rises and vice versa.
Back in April, when the price of Bitcoin surged, many altcoins initially jumped in value, though this was followed by a steady decline through to May.
However, around mid-May, altcoins surged again, with many now showing positive gains over the past 30 days.
Bitcoin has been hovering around the $8,000 mark for the past few weeks. If it can break through this resistance level and move above $8,700 then this would support a continued bullish trend.
Market confidence may then carry it further up, perhaps even causing it to reach $10,000 by July.
Contra to this if it moves below the $7200 level this may cause some stagnation of the market and lead to accumulation at considerably lower levels. it’s also possible that the Bitcoin price could stagnate for a while around the current level and It’s always hard to judge the market, particularly if market manipulation is occurring. For now, the signs seem positive that 2019 will be a better year for Bitcoin than 2018.