Bitcoin – What Drives Its Price Up?
Bitcoin is on a trip higher. The leading cryptocurrency trades above $18,000 today, pulling an impressive run since the breakout from the $10,000.
Can Bitcoin move even higher? What drove the price higher, and what are the chances for such a move to continue?
One of the first things that strike the eye at the current Bitcoin bull rally is the silence of the market participants. More precisely, the financial media does not pay much attention to this incredible rally. It is like Bitcoin keeps advancing when no one is looking.
Bitcoin Close to New All-Time Highs
Bitcoin trading above $18,000 means it gets close to the all-time highs it reached in December 2017. Only this time, no one is really talking about it because the attention and the focus are on the pandemic. Back in 2017, the crypto was all the hype, the holders bought Lamborghinis, and crypto-conferences were the new trendy events to attend. Not this time.
This time Bitcoin seems to have accumulated enough energy to bounce to a new high. Will it be sustainable? No one knows. However, there are some things to consider moving forward.
First, the current rally on Bitcoin started from $10,000. When Square announced its investment, it was one sign about who is propping the market. After PayPal let customers know that it allows crypto payments on its platform, it was another sign. From that moment on, Bitcoin continued a higher highs/higher lows series that did not stop to this day. That is a normal market condition for a bullish market.
Second, the FCA in the United Kingdom, the financial regulatory body, issued an order that all brokers should stop offering crypto CFDs starting with January 2021. A CFD is a derivative contract, and all those traders that bought and sold Bitcoin and other cryptocurrencies using a CFD instrument were basically speculating on the price movement – not owning the real thing.
Because of the FCA’s order, investors switched to regular crypto-exchanges, where they can actually buy or sell Bitcoin at the market. Also, because most people buy and hold Bitcoin, the demand for crypto assets increased.
These are just a few thoughts about why Bitcoin rose. It even decouples from gold, and it keeps advancing while the USD consolidates against other fiat currencies.
However, on the flip side, Bitcoin did lose 60% of its value in 2020. In other words, a drawdown of 60% on any investment is difficult to tolerate by the professional investment community. Therefore, there is still a long road until Bitcoin becomes a mature financial asset.