Last week, Bitcoin had its strongest trading day since the famous December 2017 bull run. It shot past the $5000 per Bitcoin mark in several regions on April 2, giving hope to the long-suffering investors who had been suffering the bearish trend for over a year.
This price surge adds 19 percent to the price of Bitcoin in a matter of few hours and $4 billion to total Bitcoin market capitalization.
The increase in Bitcoin price has left many investors and industry executives bewildered about the factors that led to the surge in the prices of cryptocurrencies. People who analyze and trade digital currencies offer various explanations for the sudden surge, while there was nothing obvious that seemed to trigger it.
Here is an analysis of some of the factors that we believe to have led this dominant Bitcoin surge.
1. A purely technical move:
Reports throughout the past week suggested that the $4200 resistance level is crucial for the near-term price movement of Bitcoin and once that level is surpassed, the possibility of significant upside movement about $4500 mark becomes imminent.
As Mati Greenspan, senior analyst at the trading platform eToro, wrote in an email that “The rally seems to be purely technical in nature as bitcoin crossed a key level of $4,200 and there wasn’t any notable news that came out during this time”.
Others also noted that the price jump was related to a short squeeze. Gabor Gurbacs, the digital asset strategist at VanEck, points out in an email to Barrons that as the price moved up in increments, more than $500 million shorts have been liquidated on leveraged crypto trading platforms around the world. This further fueled the rally of Bitcoin.
The technical move led contracts to be liquidated and improved sentiments in the crypto world that ultimately caused bitcoin to increase by 19 percent within an hour. However, it is argued that the bullish trend is only just beginning.
2. Bearish exhaustion:
Many analysts and traders have been building a case for bearish exhaustion over the past few months. Throughout January, the market was showing bearish signs with bitcoin losing 7.59 percent of its pricing value over the course of the month. However, the low and high BTC prices in January were within the previous month’s trading range which indicated that bearish exhaustion might be on the cards.
Bitcoin surged to $4,100 before falling back to $3600 in February and continued moving upwards by the end of March. BTC recorded many bullish higher lows along the way, which showed a similar pattern as seen before the 2015 bull breakout. The bearish exhaustion may not account for the dramatic swings in Bitcoin price recently, but the analysts are hopeful that the bitcoin winter may be over.
3. Rising volumes, increasing interest:
A cryptocurrency analyst going by the moniker ‘Galaxy’ says that buy volumes on Binance are an all-time high. Following a strong upside movement in Bitcoin price, Binance CEO also said that it caused the system to underperform for a short period of time. He adds that “Some UI server scaling issues, affecting some users, being fixed now. Parts of the system that was supposed to auto-scale didn’t. It should be better now.”
Albeit some investors couldn’t initiate trades during the time Binance was suffering server issues, the exchange saw a spike in demand after four months of continuous low volume and stagnation in the crypto market. The rise in volume across the major exchanges shows that investors are starting to take interest again, which is improving the overall sentiment around the crypto market.
4. Industry Developments:
As the cryptocurrency market is evolving, the crypto industry has seen constant progress in areas like merchant adoption and institutionalization. The last two weeks saw the e-commerce platform in Switzerland accepting starting accepting cryptocurrency payments, and a luxury Swiss hotel integrated digital currency payment method. These actions in synergy with the evolving cryptocurrency market have also led to a rise in interest towards the cryptocurrency market.
Additionally, the involvement of ICE, Fidelity, Nasdaq, and other large financial institutions in crypto in recent months has also helped cryptocurrencies go mainstream.
Some analysts see the BTC price surge in a bad light:
While most of the digital assets analysts and traders are hopeful that Bitcoin will likely maintain the bullish trend, there are others who see less encouraging reasons for the price surge. ANXONE CEO, Dave Chapman, while talking to Bloomberg told that the mainstream finance is likely to see such trends negatively.
Jehan Chu, Kenetic Capital managing partner, is also of the view that the bullish movement is not something special. He further added that crypto markets were subject to waves of enthusiasm. Some analysts believe that given the suddenness one-dimensionality of BTC’s price movements, market manipulation is a reasonably convincing explanation.
How Bitcoin performed compared to other cryptocurrencies?
Bitcoin traded between $3600 and $4,000 before crossing the $4000 mark last week. For much of the Monday, BTC traded around $4,100 before the surge. After reaching to around $5,000, bitcoin slipped back to $4,800. It is pertinent to note that other crypto assets and digital currencies including in the likes of Ethereum, Litecoin, and Ontology were up by double-digit percentages and recorded substantial gains against Bitcoin, even though the stock market did next to nothing.
According to technical analysts, the strong performance of alternative digital currencies enabled the crypto market to stay afloat amidst the stagnant price trend of BTC. The upward trend in BTC prices can significantly boost the confidence of investors in the digital currency market in the near term.
What lies ahead for Bitcoin:
Looking forward, bitcoin could plunge to levels below $4,700 in the short-term. However, the overall outlook will remain bullish as long as bitcoin price stays above $4,236.
After the April 2 surge in prices, bitcoin revisited the $5,000 mark the following day which was, however, accompanied by a lower high on the relative strength index (RSI). The bullish higher high above $4,236 shows that the tide has turned in favor of the bulls and the ascending 5- and 10-week moving averages validate this argument.