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The Bitcoin bulls are back. What’s driving the recent price action?

After a devastating bear market that saw Bitcoin fall 85% from its December 2017 all-time high, Bitcoin has proven the naysayers wrong, roaring back into life in April and May. What’s behind the recent price action and has the bull market returned?

Bitcoin’s swagger is back. The world’s leading decentralized digital currency is now up 146% from the December 2018 low. Historically, April and Q2 have been the most bullish periods for bitcoin, and this year has been no exception. The current quarter ranks as the second-highest quarterly gain since 2014 and the seventh-highest quarterly gain of all-time.

In the seven weeks from the start of April, the bitcoin price has increased from $4,100 to $8,000, an increase of nearly 2x against the US dollar. The current market sentiment is bullish, what are the reasons for the return of the bulls, and will the bull market last?

Eastern influence

With the second-highest number of crypto traders in the world, Japan has a significant influence on the price of bitcoin. Several new exchanges have opened in Japan in 2019, providing new fiat on-ramps. Among them is the Rakuten Wallet exchange, operated by Rakuten, the Japanese equivalent of Amazon. Due to the size and influence of Rakuten in the local market, this has been viewed as extremely bullish. To date, the platform has not released any data to indicate how many traders are using the platform, or how much of an impact it might have on the bitcoin markets.

In China, countermeasures to Trump’s tariffs have pushed the yuan into a downward spiral, falling over two percent against the dollar to hit its lowest level in six months. Commentator Dovey Wan, who regularly tweets her insights on the Chinese crypto market, suggests this downturn could be indirectly fueling the recent bitcoin uptrend, pointing out a startling similarity between the price of bitcoin, and the USDCNY exchange rate:


Chinese nationals, bound by strict capital flight regulations that prevent large sums from being sent overseas without approval, are forced to watch the value of their funds plummet as the yuan falls. But bitcoin, Wan suggests, can allow these citizens to bypass regulations by sending funds to crypto exchanges, where it can then be swapped for a less volatile currency and withdrawn to an overseas bank account, or simply parked in a stablecoin.

Bitcoin’s use as a safe haven during currency crises is not unprecedented, but Wan suggests that due to lower liquidity, activity in China could be a particularly potent catalyst for price action. The ban on cryptocurrency in the country has forced traders to either use offshore exchanges or peer-to-peer platforms like LocalBitcoins, which are likely to have seen a drop in liquidity recently as the country has enforced a ban on making transactions over WeChat. researcher Garrick Hileman confirms this “strong inverse correlation” between bitcoin and the yuan, noting that while it is not possible to be “100 percent certain that bitcoin’s recent price increase is being driven by trade tensions”, there is historical precedent, and the yuan has traded inversely to bitcoin in the past.

As cryptocurrency is effectively banned in China, obtaining reliable data on how much underground trading is taking place in China has become more difficult, making it hard to draw definitive conclusions.

Nevertheless, the data that is available suggests a significant boost in trading volume in the country over recent months — particularly on peer-to-peer marketplace Paxful, which has seen record levels approaching the peak of December 2017.


Market manipulation

Other analysts, however, suggest that Bitcoin’s recent dramatic drop — falling 20 percent in less than an hour on Thursday, May 16th — disproves the China narrative, and instead points to the possiblity of manipulation.

Economist Alex Krüger suggests the recent rally can be attributed to a handful of large players with inside knowledge, frontrunning significantly bullish announcements from institutional players like Bakkt, which announced on Monday that it is moving forward with plans to launch physically-settled bitcoin futures.


The “nonsensical” China narrative, says Krüger, is the result of cherry-picking time windows and instruments and both the move up and the flash crash are more likely to have been orchestrated by a handful of bitcoin whales.

Prior to the flash crash, Bitcoin was trading at a slight premium on Bitstamp, one of the larger, but still relatively illiquid, bitcoin exchanges. Then, a single seller put up a “sell wall” of over 5,000 BTC. This pushed the price down and caused over US$200 million in long liquidations on BitMEX as well as on multiple other derivatives platforms.

But regardless of whether the initial catalyst was manipulation, mysterious Japanese exchanges, or Chinese capital flight, the global crypto market now appears to have taken a decisive turn, and bitcoin trading volume is hitting fresh 2019 highs.

The fundamentals are strong

Markets are complex, and bitcoin’s return to a bullish price trend may simply be a combination of all of the above factors, plus the fact that bitcoin’s underlying fundamentals are strong. It’s just one year until the next Bitcoin halving event, a factor that is likely to be priced in by the market in the coming months. Google searches for “Bitcoin” hit a 12-month high this month, and the recent price surge was predicted by a number of long term Bitcoin bulls including this report by Tuur Demeester suggesting that the current price action follows a period of “heavy accumulation”. May’s Consensus crypto conference usually conincides with bullish price action, and recent announcements from Fidelity and Bakkt have continued to push the narrative that institutional capital is moving into the space. With recent negative news events involving the ongoing Tether / Bitfinex saga, the Binance hack, and the Craig Wright is Satoshi Nakamoto sideshow, all failing to significantly impact the markets, it appears that for now at least, the bitcoin bulls are firmly in charge.


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