Bitcoin’s explosive weekend sets up an intriguing Q4

The weekend’s 40 percent surge saw the losses of recent weeks wiped away in a matter of hours, sending a clear bullish signal to traders.

Bitcoin’s 42% swing is the 3rd largest daily gain in Bitcoin’s price history. Large percentage gains occurred more often in Bitcoin’s early days when the market cap was much smaller. The previous two times Bitcoin saw a more than 40% daily gain, it was trading at $0.40 and $5.65 in 2010 and 2011. The weekend’s 42% move was significantly higher than any single day since that time, including the 2017 bull run.

Traders and investors have been left wondering what the potential drivers of the move might be. Could it be China’s sudden embrace of blockchain? A breakout of trading volume on the newly launched Bakkt exchange? Or perhaps renewed bullishness ahead of the 2020 halving.

President Xi’s pump

Analysts such as Alex Kruger and Maple Leaf Capital have suggested that the price surge was catalyzed by Chinese President Xi who announced on Friday that the country would invest in blockchain.

Speaking at a meeting of the Political Bureau of the Central Committee on Thursday in Beijing, Xi said blockchain technology has a wide range of potential applications within China, including financing businesses, "promoting data sharing, optimizing business processes, reducing operating costs, improving synergy, and building a credit system."

“We must take the blockchain as an important breakthrough for independent innovation of core technologies,” said Xi to committee members.

Even though the president was talking about the use of private blockchains for enterprise applications, rather than public blockchains like Bitcoin, the announcement is still thought to have had a positive impact on price.

As Binance CEO Changpeng Zhao pointed out, blockchain announcements in China like this one have sparked rallies before. He linked the recent price action to a January 2016 speech by the Chairman of the Central Bank of China, which he says catalyzed a crypto bull run as "bitcoin companies in China suddenly became blockchain companies." This is said to have led to the altcoin bubble of 2017, and eventually the bitcoin all-time-high at $20,000 in December 2017.

But, not everyone agrees on China’s outsized influence on the market.

Chinese native Dovey Wan, a partner at investment firm Primitive Ventures, suggests it is doubtful that the country could be responsible for catalyzing the move. This is partly due to the blanket ban on bitcoin trading in the country, which means that most trading takes place on over-the-counter exchanges. These are unlikely to cause sudden price movements because they spread order execution over different exchanges to effectively source liquidity.

Not only that, but Wan reports that bitcoin "sees little to no premium" in China, unlike 2017 when citizens of South Korea paid a significant ‘kimchi premium‘ as the country led the bull run.

Spiking Bakkt futures

Other analysts have suggested that institutions buying bitcoin on the newly launched Bakkt exchange could have contributed to the move upwards.

Although the exchange initially faced a chilly reception with low levels of volume, trading volumes have since increased, breaking out to new highs several times last week.

On a monthly basis volume has risen dramatically, with the number of traded contracts reaching a new all-time-high at 640 in October — an increase of 653 percent since September.

But while the volume spike is impressive, the total volume traded on Bakkt is still dwarfed by other institutional platforms like the CME.

Overall, Bakkt is likely to be just one of several derivative platforms that contributed to the action, including CME, and the newly launched Binance Futures, which have both reported significant growth in the past few weeks.

As the price crept up on these exchanges, it is likely to have triggered a cascade of liquidations on the largest futures exchange BitMEX as traders betting against bitcoin scrambled to buy to cover their short positions, helping to push the price higher.

With the renewed bullish sentiment, many traders will be looking for a positive Q4 in the Bitcoin markets.