Everyone is looking for answers as to why Bitcoin’s price suddenly spike 25% this week, and the answer is likely due to multiple variables. There were numerous technical indicators that a shift was due, but also major shifts in the fundamentals that can give the shift more credence. One of these was the pricing in of the next Bitcoin halving.
Every few years, the mining reward halves, which results in even less inflationary pressure on the coin. According to past trading data, this tends to result in the price getting bid up starting a year in advance.
And on a macroeconomic level, there are a few things going on that could lead to investment in Bitcoin. First, you have the general fear of an economic downturn pushing money away from your standard bonds and equities, and instead putting them into assets that are seen as recession proof, like crypto or gold.
Then you have smaller events like Brexit, which has many British residents selling their GBP for BTC. The fact that Bitcoin is beginning to be thought of as a flight to safety asset in both Venezuela and the UK also says a lot about the long term use cases for Bitcoin.
Many Bitcoin supporters believe that Bitcoin’s most significant effects will occur in developing nations where there is no powerful incumbent banking industry to displace. Companies like Local Bitcoins show strong volume in developing nations, as many residents see BTC as the route to survival. Citizens of wealthier nations may be speculating on the price of Bitcoin to make a little money, but in these developing nations, investing in Bitcoin is a matter of survival. None of this is to say that it is being spent in the way that Satoshi originally planned it, but adoption is definitely occurring in some sense.
What the Market Says
Another factor that may be the most important is the market activity that is leading to more funds entering the system. Reuters reported a $100 million trade that was executed via algorithms on Tuesday. Although spread across several exchanges, this would clearly have the power to move the markets.
In fact, based on past data regarding fiat multipliers, it is possible that this could increase the market capitalization by 10-15x that amount. And that is a conservative estimate. At the same time, a short squeeze has occurred and the BTC/USD shorts decreased from ~21k BTC to ~17k BTC.
Where This Leads
Right away, each of these factors is creating significant upward pressure on the cryptocurrency. But altogether, it is a recipe for a change. One thing is for sure: people are showing their interest in cryptocurrencies again. Google Trends shows that the number of inquiries into Bitcoin nearly tripled during this price spike.
Perhaps the biggest part of this, as we discussed earlier this week, is that traders have been waiting for the shift from bear market to bull market for a while. Even the slightest hint of a shift can almost become a self-fulfilling prophecy. March represented a 2-year low in the trading range, so it was bound to happen. Low volatility leads to shift, much like the calm before the storm.