“Early to bed and early to rise makes Bitcoin healthy, wealthy and wise” one could say. This morning the main cryptocurrency of the world woke up priced at $8,276 with ethereum rising to $482 and ripple surprisingly flat at $0.46.
Yes, Bitcoin is back, and the financial market reaction responded promptly to its 40% surge over the last fortnight.
What’s driving bitcoin’s spectacular rally?
And what has China got to do with it all?
Firstly, we have to take a step back to February, when Bitcoin went below the $6,000 mark. Then, in April, and again in June-July, we saw it fall by more than 40% as it slid from $10,000 to $5,700 and he stood solid at around $5,800 for a while, when almost suddenly, yesterday, Bitcoin made its way through the $8,000 barrier.
In comparison, Ether recovered less than 15% over the same period. Ripple gained up to 16% yet failed to consolidate gains above 0.50 per US dollar. Bitcoin Cash hindered as well, despite offering better features than the original Bitcoin in terms of speed and scalability.
A number of fundamental catalyzers are believed to be behind Bitcoin’s significant outperformance compared to the rest of the sector.
But there is, of course, more. Some technical analysts had called out the rise because they spotted an “inverse head and shoulders” pattern in its price: Bitcoin’s technical fundamentals were primed for an increase in its price. According to this pattern, the price of a security alternates between successive troughs before breaking out into a new high.
A surge of positive news developments has also marked the cryptocurrency ecosystem’s recent highs. The SEC is said to be considering the prospect of bitcoin ETFs again. Their introduction is expected to make cryptocurrencies accessible to common investors and inject liquidity into the markets. Further capital is expected to follow in the form of institutional investors. Cryptocurrency startups like Coinbase and Ledger recently announced custody solutions aimed at luring institutional investors. Unlocking the barriers to the flow of capital along with advances in establishing a regulatory framework for bitcoin is surely helping to open the gates for institutional money into the cryptocurrency.
And, last but not least, there is the “China factor”
There’s no doubt that the yellow giant influences the bitcoin price, as Chinese mining pools control more than 70% of bitcoin’s collective hash rate. That means the speed and power of the network are determined in China, and the larger part of the maintenance of the system occurs there. There was a time China accounted like 90% of global bitcoin trading; now, according to China’s state-run Xinhua News Agency […] yuan-denominated trading in bitcoin has dropped below 1% of global volume”. Impressing, if compared with Japan’s yen, which now accounts for about 44% of global volume, compared to 11% in US dollars.
The reason is, of course, that Chinese authorities banned trading in cryptocurrencies: nevertheless, speculators are always trying to find ways around the increased capital controls that are being imposed, so as to get their money out of the country and there is a great deal of cryptocurrency speculation still going on, much of it via tether (a cryptocurrency pegged to the dollar), which accounts for almost 40% of global volume.
But, according to the major analysts, the macro catalyzer which explains why Bitcoin, and not other cryptos, rallied over the past month is the current trade frictions between the US and China, with President Trump furiously tweeting on intellectual property rights and trade deficits.
Clem Chambers, the CEO of ADVFN declared that this led wealthy Chinese citizens sunk their money in bitcoin to prepare for a massive devaluation in currency “If the trade wars go into meltdown, then bitcoin will ‘moon’ because huge amounts of Chinese currency will be swapped for BTC as the yuan-denominated super-rich move to be hedged from the wealth privations of devaluation”, he declared to Forbes, “The Chinese currency, the Yuan, is being devalued to combat Trump’s tariffs. To get around Chinese exchange controls, rich and influential Chinese are buying Bitcoin to get out of their depreciating currency, which looks likely to keep falling in value.”
And, undoubtedly, Bitcoin’s recent surge came two days before China accelerated its devaluation process. In contrast, USD volumes had only a small spike and USDT (tether) remained constant through the movement. Matthew Greenspan of eToro agrees “The surge above $8,000 came from elsewhere in East Asia” he asserted, highlighting that “[…]Japanese traders know what’s up! Earlier this week Japan’s bond yields had a massive spike on speculation that the Bank of Japan might take action. Bitcoin has been flying ever since.”
Hence, it is a possibility that the rising tensions between the US and China would increasingly benefit to Bitcoin, as the digital currency would help Chinese investors storing a part of their foreign holdings in an off-regulation currency: the anonymous nature of transactions allows investors to use this technology to avoid the very much restricted banking system across the emerging market giant, even if trading Bitcoins is forbidden in China.
Yes, Bitcoin rules again and this is surely going to be an energy boost for the entire crypto-sector, although Bitcoin has every intention to remain the king of the crypto land for a long time.