Bitcoin’s price has risen stratospherically, a fact that leaves many minor players in the market with massive gains and many bigger players millionaires. But is this a bubble? Are the gains real? And are the bitcoin whales in for a sad Christmas?
First we must understand what drives bitcoin price and, in particular, this boom. The common understanding for current growth leads us back to institutional investors preparing for the forthcoming BTC futures exchanges.
The primary theory about the astonishing rally being put forward by investors on social media is that bitcoin will soon benefit from big institutional money injections via the introduction of the first BTC futures products. CBOE Global Markets and CME Group are launching new futures contracts on December 10 and December 17, allowing investors to go long or short on bitcoin. This ability makes bitcoin far more palatable to big investors who are currently flooding the market to make profits if and when the bitcoin price falls.
This move also legitimizes bitcoin in Wall Street’s eyes, an important point considering cryptocurrencies are still suspect.
Further growth comes from the “bitcoin as a store of value” crowd. This group of enthusiasts bought and held bitcoin and will not sell it at any current price. More and more bitcoin fans are entering into this group and they are driving up demand increases. In a world where people expect bitcoin to be worth $1 million soon this sort of activity – whether rational or irrational – is quite popular.
Ultimately new and old users are testing the limits of a system that, for a decade, has been untested. The futures market will be a big driver in growth and bust over the next few months as institutional investors begin using the currency. CoinDesk writer Omkar Godbole notes that the price should remain stable but “a pullback to $11,000 cannot be ruled out, but dips below the upward sloping 10-day MA of $11,500 are likely to be short-lived.”
Is this dangerous? Yes, to those who are betting big on BTC. Again, I cannot tell you whether to buy or sell but the common expectation is that bitcoin raises to a set point and then fluctuates between a high and a low until the next run up. Many expect foul play.
