Why is Bitcoin Price Rising Fast?

November 16, 2020

Ever since its creation, Bitcoin has grown to become an awesome digital currency. The currency came into existence following the ideas set out by the mysterious Satoshi Nakamoto.

It offers a promise of lower transaction costs than the usual online payment mechanisms among other benefits.

Bitcoin is operated by a decentralized authority, unlike in government-issued currencies where we have to deal with banks.

Despite not being the legal tender, Bitcoin is high on popularity, leading to the establishment of other virtual currencies (Altcoins). The following are reasons why the Bitcoin price has been rising so fast for the past few months.

buying bitcoin

1. Increase in institutional participation

Mathew Dibb, the co-founder of Singapore-based Stack Funds, explained that there has been a notable increase in public companies entering the cryptocurrency market over the past months. He added that public companies, plus hedge funds have been making sizeable capital deployment.

On September 15, Micro Strategy (NASDAQ: MSTR), a listed business intelligence firm, made it public that they had purchased $250 million worth of bitcoins. A few weeks later, another company (NYSE: SQ) announced its investment in the bitcoin market.

With this increase in institutional participation trend, there is likely to be pressure created on prices. Also, this encouraged broader market sentiment and likely made more buyers join the market.

The number of bitcoin whale entities (cluster of addresses held by one participant in the network with at least 1,000 bitcoin) went up. It is the highest in four years at the end of October. The “accumulation of addresses” metric suggested the increase in retail participation leading to record highs.

The ongoing coronavirus pandemic has triggered fears of a dollar sell-off. The Federal Reserve of the U.S. has encouraged institutions and retailers to put some of their money into bitcoin. Further, there are inflation-boosting bond purchase programs going on.

2. Increase in unmoved bitcoin supply

The unmoved supply of bitcoins remains high despite fewer sellers moving their funds to exchanges. On September 9, unmoved supply for bitcoin hit a record 63.5%. It has fallen slightly, but the price of bitcoin rose substantially. According to Paul Burlage, an analyst at Delphi, this is a positive metric.

This shows large spot buyers, mostly institutions, are “HODLing” bitcoin despite the recent happenings. They have created a shortfall in bitcoin liquidity. This pressures the price to rise. Moreover, retail investors have been taking direct custody of their coins by moving them from the exchanges to their own wallets. This creates a drought on the sell-side.

The decline in exchange balances is an indicator of strong holding capacity that the market has at the moment.

3. Technical breakout

Bitcoin broke above $12,500 in the third week of October as it strengthened its bullish bias. Many analysts pointed $12,500 as the level to beat for the bulls. This is because the cryptocurrency had declined sharply.

David Lifchitz, chief investment officer at Exoalpha, said that nothing should done until there is a breakout above $12,500, which was the real resistance level.

Indeed, he was right. There has been more substantial chart-driven buying pressure due to the eventual breakout above $12,500.

4. Lack of a clear top

In recent weeks, the number of speculative buyers (weak hands) has declined. The moving out of short-term buyers and coming in of long-term “HODLers” show that bitcoin could see a prolonged rally.

According to Paul Burlage, the local maximums of ‘weak hands’ has been trending downward. However, it is hard to confirm that the recent increase in the speculative base has reached its peak.

He added that the larger trend suggests stronger hands are taking over rather than speculators.

This could indicate that the once resistance level of $15,000 could become a support base.

Is the Bitcoin’s Rally Overstretched?

paying with bitcoin

The answer is no according to various investment indicators. These historically reliable indicators suggest that the bitcoins rally has an opportunity to continue rising after its rapid rise in 2020.

According to data from Glassnode, bitcoin is still below the score of 7.0. For this score, an asset is considered a near top. This is despite bitcoin’s “market value to realized value” (MVRV) Z-score hovering at a record high of 2.12.

The MVRV Z-score is used to assess whether an asset is overvalued or undervalued. So, simply cryptocurrency is overvalued, but has the potential to extend the run of gains from the low they recorded in mid-March.

Paul Tudor Jones, a philanthropist and hedge fund manager, commented that bitcoin’s rally was only just beginning. So far, various investment indicators back his comments.

Cryptocurrency has stayed on the upward trend since the mid-March low. This trend is not slowing anytime soon. Bitcoin being the leader, it is the right cryptocurrency to invest in. Always invest in what has the highest potential.

The next time you are at the Washington Square Mall with your family, try transacting using bitcoins. That is how the digital currency can grow even faster. Well, you might have to ask around about which store takes bitcoins. Online shopping with bitcoins can be an alternative too.