After an entire year of snoozing, Bitcoin bulls have started wiggling from their hibernation. The waking started in early April and since then the markets have remained highly volatile. However, for the investors who missed the early signs, there is no doubt that the animal spirits have awoken by now.
In mid-December 2018, the world’s most popular cryptocurrency slid to as low as $3,100. By the start of April, BTC was still hovering at around $4,100. Everything turned upwards since then. In the past three months alone, Bitcoin has gained over 230% to peak at almost $13,900 on June 26. In the course of a potential ‘break out’ upwards, the crypto has gained almost 50% in the past six days alone.
Now investors, analysts, and commentators ask, what has driven Bitcoin that high rapidly? It is hard to pinpoint a single dynamic at play, but the following four factors have played a significant role.
1. Facebook’s Libra
By launching a local cryptocurrency, Facebook is perceived to be legitimizing all cryptocurrencies across the board. Also, it is seen as a sign of corporate America’s implicit endorsement of cryptocurrencies. When a behemoth like Facebook joins the crypto world, mainstream acceptance is highly likely. Thus, it boosts future demand expectations.
Facebook’s entrance is interpreted as a massive vote of confidence from a majorly important player. It is important to note that Facebook’s Libra comes with major partners that include Spotify, eBay, Visa, Lyft, MasterCard, Uber, Coinbase, and PayPal. Although Libra and Bitcoin are barely similar, the earlier has extensive corporate endorsement suggests that the crypto industry is here to stay.
Additionally, Facebook’s entry into the nascent market will familiarize billions of people with digital wallets. Also, more people will know about non-sovereign virtual currencies increasing the rate of mass adoption.
2. Increased Institutional Involvement
Some analysts think that bitcoin’s rise to multi-month highs could be a result of a considerable increment in institutional activity in the past 12 months. That is according to a report broadcast on CNBC television posted on June 25.
Reliable data from an associate of Genesis Global Trading, Genesis Capital, reportedly confirms the investors’ uptick in crypto. That same data reveals that the institutional volumes are 2-3 times higher than they were a year ago. The proxies for retail demand like Google searches for ‘bitcoin’ are still low compared to the 2017 bubble peak. But, signs show that institutional investors are coming into this space in droves.
For instance, Grayscale’s Bitcoin Trust (GBTC) recently recorded its premium over net asset value surge to a 10-month high. GBTC is a ‘safer’ and more regulated strategy for huge institutions to enter the crypto markets in the absence of an ETF.
Furthermore, the CME’s futures contracts have experienced a surge in popularity. The open interest recently hit a record high of 26,555 BTC translating to around $350 million at the current prices. It seems institutional investors are now beginning to dive into bitcoin and other digital assets after a long wait.
3. ‘Safe Haven’ Demand
Bitcoin supporters’ most popular explanation for the rally is that it is operating exactly as it should. Bitcoin’s censorship resistance and its mathematically-fixed supply model are increasingly valuable. While nuclear-armed countries engage in sanctions, protectionism, high-stakes military exercises, trade wars, and rapid stimulative measures, investors are turning to digital assets.
Furthermore, as global geopolitical tensions increase and economic experimentation become the norm, traders now see Bitcoin as a compelling and uncorrelated hedge to the traditional investments.
4. Bitcoin’s Fundamentals are Strong
Evidence suggests that the nascent asset network’s popularity is growing although it is early to endorse ‘fundamental drivers’ for it. Bitcoin network’s ‘hash rate’ measures the amount of computing protecting and supporting the cryptocurrency. Recently, it hit an all-time high over 65 million TH/s*. Furthermore, confirmed daily transactions are approaching the late 2017 highs.
The amount of data in every 10-minute batch of transactions, ‘block size,’ is also hitting a record high. Most importantly, transaction fees remain relatively low with advancements in Bitcoin’s code including the Lightning Network and SegWit.
Will the Rally Continue?
In spite of all these convincing bullish dynamics, investors should do thorough research before investing in the crypto-markets. The primary question comes; is bitcoin actually 50% more valuable compared to how it was two weeks ago? Even for those who are compelled to think that BTC was 40% undervalued in mid-June, its price might have spiked ahead of some of the ‘fundamentals.’
In the past 24 hours, Bitcoin proves to be a highly volatile asset that is susceptible to sharp swings in both directions. The above-named factors will play out a huge role in the coming years. For example, Facebook is not expected to launch Libra until 2020 at the earliest.
Therefore, even today’s pullback may come in handy for the bullish swing traders and investors waiting for the euphoria to quiet down and join the uptrend at a better value. For now, it is impossible to determine how far Bitcoin will go. But, if another bubble develops, patient traders will come out ahead during parabolic moves.