Bitcoin is soaring. For a crypto coin that saw many extremes—climbing to a value of $30000 for a bitcoin to seeing lifetime lows of $3000, less than 6 months later, it’s a multi-headed saga that never pauses to surprise. Its revival and continued growth are extraordinary.
Let’s trace the reason behind the growth trajectory. Let’s crunch some numbers behind the fresh increases. As of 11th July, BTC broached the $12000 mark.
On July 26, BTC almost tipped $14000. Since then, there have been many dips and surges. It dropped below $10000 on July 2 and went above $13,000 on July 10, falling back to $10,000 again by July 16.
Researchers saw this coming as early as a week ago. Their reasons were different. They predicted the currency would climb on the back of the jubilatory environment provided on the back of the ensuing fourth of July celebrations.
The Current Price Rise
On— 8th August 2019—BTC is trading at $11,409, slightly below yesterday’s high of $12000.
It’s not Bitcoin alone; that’s a crowd favorite. Gold tipped $1500, a six-year high.
The correlation is no accident. Bitcoin’s image is transforming. No, it hasn’t got any better in terms of computational performance. There are however other underlying factors at play.
Up until now, Bitcoin has been strongly associated with the US dollar. That’s changing. The cryptocurrency is not being thought of in terms of the US dollar, meaning geopolitical turmoils with the greenback at front and center don’t concern BTC anymore as it used to. As fluctuations of the US dollar ceased to be an important play, something else has taken over. Over the last 100 days, bitcoin is being correlated with gold more.
It’s not the currency alone that’s scaling new heights. Bitcoin’s hash rate that gives an overall picture of the computing power employed to mine new bitcoins, a process that gets ridiculously more expensive as newer coins are mined— reached 74.5 million tera hashes per second. This is double the high achieved last year.
Just like how gold purchases go off the charts during a recession or during a financial turmoil, so do crypto enthusiasts clutch to their digital wallets during economic meltdowns.
People tend to reposit trust in what they’re familiar with in times of uncertainty. There are other reasons too.
In the past, the rise in price happened due to multiple reasons. Anything that shows the fall of traditional banking systems for one builds confidence in alternative money.
Let’s go through the potential reasons one at a time.
The Reasons Behind the Numbers
Changing Economic Landscape Helped The Bitcoin Rally
Freshly sparked recession fears is one reason for the surging popularity.
For investors, spooked by stock market crashes and disappointing earnings reports—Bitcoin is apparently the newfound haven.
On August 2, BTC surged to over $10,000, allaying fears that the bull run was over. U.S. Federal Reserve’s first rate cut in a decade is being pointed out as the prime reason behind the swift recovery.
Fed’s cut in interest rates points the finger towards slowing economic growth. It indicates that the Federal Reserve is willing to provide the required stimulus to further spending. Growth in the world’s largest economy is slowing. The fact that we are late by seven years for a recession isn’t helping.
Crypto influencers consider economic stimulus moves as positive signals for the crypto economy and this results in a near-instant impact in price swings.
Even before the formal announcement, telltale signs that pointed to a rate cut. It was enough news to facilitate the boost we see now.
In the UK, Theresa May quit leaving the trade agreement and Brexit hanging.
This put pressure on the pound, sending it spiraling below $1.21 for the first time in two years. When traditional currencies seem uncertain, the masses tend to follow the digital currencies.
2. U.S. China Trade War Hit Traditional Investments and Boosted Bitcoin
Cash is pouring out from stocks. It has to go somewhere.
This time the reason behind the ebullience is a bit more obvious. The US-China trade war graced the news for the most part of 2018 and 2019. Cryptocurrency as a segment is sensitive to financial happenings. I’ve often felt that those investing in crypto coins share a similar world-view to end-timers. The sky’s falling run with your coins.
U.S. China trade war that doesn’t seem to be ending any time soon sent jitters down many a spine. It is also the prime reason behind the spiraling stock market. Combined, they offer fertile ground for the renewed interest in BTC and all manner of crypto coins. The fact that China’s currency yuan fell below the key psychological mark of 7 against the US dollar helped the rally further. That’s the currency’s lowest point in over ten years.
What causes short-term volatility?
Despite the volatility, the surge indicates that BTC is consolidating its position as a safe haven.
BTC remains the crypto coin with volumes running into billions of dollars every day. Still, price swings that topple it from the heights and throw it to the ground keep happening.
So-called big traders move large volumes at a price they choose.
This often causes the market to rally in a singular direction. As soon as the impetus is gone the price corrects itself to where it was before. Not everyone is convinced that one or two factors alone are responsible for the rapid rise in prices. Everyone, however, agrees there’s renewed demand.
Some say that the rally is a direct result of the fall in yuan.
Transactions in Bitcoin remain anonymous. That’s one big part of the appeal. It’s difficult to peg the demand to certain sources and pinpoint everyone who’s buying. Meanwhile, there are a number of other triggers that could have pushed the bitcoin price higher over the short term.
U.S. retail giant Walmart is also reportedly looking to develop its own cryptocurrency.
3. Examples of Failing Banks
These galloping strides also come on the back of Deutsche Bank’s troubles. The Dutch bank announced it’ll be firing almost 20000 employees. This is taken by the community at large as some sign of the failing standards of global financial markets and engine it to herald their cause. It’s worthy to note that it’s not solely because of antiquatedness that DB is failing.
DB’s Bag of Woes has Multiple Culprits
Outdated technology is one, coupled with talent that’s quick to scuttle(given the bank’s shaky footing) and $17 billion in fines paid for over the past ten years, mostly due to flouting regulations. The economy never really recovered from the recession. Millennials and Gen Z aren’t big on spending and these have made the uphill task of survival even more adverse. Losing investor confidence is evident in plummeting stock value that has reduced by half.
To save the boat, key directors did what they always do what a company in dire financial straits does. They cut costs. And that takes different forms— like job cuts.
Primarily, the bank’s investment arm lost and keeps losing a big chunk of business to nimble competitors.
Despite the problems, only one thing needs to be done. Cut loose businesses that haven’t made a profit and free capital to invest in sectors that are showing hope. Next, let’s look at the political landscape.
4. The Friendlier Political Landscape
Crypto enthusiasts had almost thrown in the towel when it came to politicians. It’s the last quarter from which they expected any good news. It turns out, there are quite a few politicians who like BTC.
Patrick McHenry believes Bitcoin cannot be killed. He aired his views in an interview with CNBC on July 2017.
McHenry said:“I think there’s no capacity to kill Bitcoin. Even the Chinese, with their firewall and their extreme intervention in their society, could not kill Bitcoin.”
McHenry also thinks that corporations or startups are trying to mimic the essence of Bitcoin’s open-access network, pinning their hopes on the fact that replicating this would make them equally successful.
Bitcoin’s market capitalization is $211 billion.
5. Other Triggers
There are little known triggers that help us map what’s going on. Litecoin the fourth largest cryptocurrency halved block reward for miners meaning the number of tokens miners receive went down from 25 to 12.5
These events squeeze demand as the number of coins in circulation dry up and result in higher prices. For Bitcoin, a halving is on the cards with reward touted to fall from an already low of 12.5 to 6.25. The anticipation of this is building more demand.
Square, (a payments company) revealed that it made $125 million selling bitcoin through the app. This provided another impetus that lifted the price. From these increased volumes, Square generated around 2 million US dollars in gross profits.
The Dramatic Spurt in Prices Isn’t New
Prices jumped to a new high after an anonymous buyer placed an order for coins worth $100 million. This was in April this year. The order executed algorithmically bought coins 7000 at a time. Seeing the sudden interest, trust among passive investors bubbled. This resulted in a full-swing purchase wave that wasn’t seen in recent times.
Yes, Bitcoin has zero employees to fire. But DB too isn’t built for the old world as they claim. All digital currency shares inherent problems. The crypto market hasn’t ever been a smooth journey. Allegations of fraud, theft, and misuse of funds are rampant. Couple that with Ponzi schemes and pyramid chains that vanish with hundreds of millions like in the case of OneCoin. Not to mention the regulatory hurdles that categorize the market.
The U.S. Security and Exchange Commission hasn’t yet approved a single ETF to list on US exchanges. Concerns range from required liquidity to safety. In 2018 alone over $1.7 billion was stolen from cryptocurrency exchanges.
That being said, not all’s lost.
It’s still too early to comment if cryptocurrencies will blossom into all that they were hoped to. Most hopes are pinned on BTC—it is the precursor of everything around cryptocoins.
Bitcoin is up 215% in 2019, but still miles away from the $30000 mark.
One thing we know is BTC and all crypto coins are incredibly flakey. Word of mouth drives growth coupled with the fear of missing out on.
What’s your take?