Bitcoin prices are surging again, testing the $4,000 psychological level once more and doing their best to convert this formidable resistance plateau to one of support. If Bitcoin is to accelerate to higher realms, it must build a launching pad from which to do so, but analysts remain confused as to what is driving this recent positive burst of pricing behavior. Is this “tug-of-war” between buyers and sellers a temporary condition or does it signal something more significant in the near-term future?
While most in the analyst community rely upon technical charts and the stilted jargon associated with various indicators, Fibonacci levels, and familiar chart patterns, they, as a group, also recognize that fundamental forces are what really drive prices in the market. Understanding the real reasons for apparent bullish actions in the market is necessary to determine if this recent rally is a true harbinger of better times to come.
As for Bitcoin’s latest track record in 2019, it appears to be shedding its reputation for being the most volatile asset class in history and has settled down, acting more like a traditional investment security with each passing week. It began February at $3,400 and has gradually moved in a positive stair-step fashion to rest at $4,000, a level it tested back in February, before profit taking kicked in. If you do the math, that is an 18% gain, while the return on the S&P 500 index was a meager 5% for the same time period.
February was also the first month since July of last year that Bitcoin posted a positive return for a single month. Performance to date in March looks like a carbon copy after only two weeks, but the proposition that ordinary accumulation by cash on the sidelines does not seem to satisfy those in need of solid answers for what is supporting recent market moves. If you canvass the multitude of “guesses” that proliferate current price commentary, then three basic arguments form a plausible basis for the push higher.
The first creative bit of data delving derives its conclusion based on the nature of crypto exchanges. In the crypto world, there is no “Interbank” trading network, as in the foreign exchange market. There are several efforts to aggregate trading activity from the major exchanges to arrive at an informative composite figure, but generally each exchange creates its own market prices. One analyst has determined that Asian exchanges that support Chinese investors reflect heavier demand, perhaps from Chinese capital flows. The Shanghai Composite index has also surged by 25%, throwing off profits that Chinese investors have elected to stash in Bitcoin, or so this story goes. Investing in cryptos is illegal in China, but Chinese investors are adept at circumventing this ban.
Secondly, the Bitmex exchange has a thriving trading desk in Bitcoin futures contracts that expire on a quarterly basis. Settlement is in cash, a fact that usually means that last minute settlements do not necessarily impact overall Bitcoin prices in the market. The Bakkt exchange will change this, but for now, one analyst has noticed that Bitcoin prices do surge when a new quarterly contracts become active, as in now. The correlation seems a bit difficult to digest, considering volumes and cash settlement, but heavy volume from Chinese buyers could be doing the trick.
Lastly, we have to come back to the numerous positive developments that major institutional players like Fidelity Investments and Samsung have recently made. Both have made headlines, while Facebook beats its drum for its stablecoin that will revolutionize the world of cross-border payments with blockchain technology. Add to these the Bakkt and ErisX exchanges, both configured to make the SEC and institutional investors happy, and you have momentum building that cannot be ignored. And, if all goes well, a Bitcoin ETF approval could just be the icing on the crypto cake.
Will Bitcoin prices catapult higher in the weeks and months to come? The bulls have certainly charged into the limelight, but the critics have not crawled away into a cave either. Their opinion is that Bitcoin’s recent rally is fleeting and that a fallback is imminent. Both groups cannot be right, but for the time being, Bitcoin bulls are winning.