On strictly regulated crypto exchanges such as Coinbase, the bitcoin price fell to $9,700 on July 2, recording a 30 percent drop from its yearly peak at $13,868 achieved in late June.
In the past two days, within a 48-hour span, the bitcoin price has shown rapid recovery from $9,700 to $11,800, demonstrating a four percent gain on the day against the U.S. dollar.
What is fueling the momentum of bitcoin?
According to Holger Zschaepitz, a financial analyst at Welt, the bitcoin price has closely resembled the performance of gold since early 2018.
“Bitcoin gaining traction as store-of-value and digital gold in this crazy politicized Central Bank world w/negative or lower for longer low rates. Digital currency passes digital divide toward Gold. Both assets reached key thresholds in Jun, $10k & $1,400, now trade in tandem,” he said.
Last year, as the trade dispute between China and the U.S. started to worsen, leading to increased geopolitical risks in the global economy, the value of gold tanked against the U.S. dollar, briefly below the $1,000 mark.
Similarly, bitcoin saw most of its gains in the 2017 bull market wiped out in the first half of 2018 in what would turn out to be a 16-month brutal correction.
Some prominent investors in the likes of Placeholder partner Chris Burniske and ARK Invest CEO Cathie Wood suggested that the bitcoin price may have crashed to $3,150 in late 2018 because investors started to lay off liquid assets, fearing a large global equities market slump.
Cathie Wood pointed out to me that in December 2018, bitcoin was maybe more affected by the global macro scare than people realized. In such a scare, people sell their most experimental assets, such as bitcoin, and other crypto assets, exacerbated by endogenous doubt.
But, following the December 2018 global macro scare, central banks (including the U.S. Federal Reserve) got dovish, injecting liquidity and assurance back into the markets. And so risk-appetite has increased, including for bitcoin.
If the abrupt crash of bitcoin in December 2018 was in fact caused by uncertainties in the global market, investors anticipate that the strong momentum of the U.S. stock market and the overall decline in geopolitical risks may revitalize interest in the crypto market.
Where is the ceiling?
Perhaps due to the recovery of appetite in high-risk trades and investments, the crypto market has performed relatively well in recent months.
Last week, when the bitcoin price experienced a 30 percent pullback from its yearly high, technical analysts opened up the possibility of a larger drop to early June levels considering the magnitude of the near term drop.
The dominant crypto asset recovered fairly quickly in the past 48 hours, surpassing the expectations of many investors.
Reports indicated that the bitcoin futures market of CME reached a new high in June with a 30 percent surge in account registrations.
Speaking to Coindesk, Gryphon Labs partner Gareth MacLeod said that traders in the traditional finance industry have become more optimistic in the crypto sector in general as a result of the release of the whitepaper of Libra.
“It’s most likely traders in the traditional finance industry using CME to take a long position off of news about Libra,” he said.
The rise in price of bitcoin year-to-date and the unexpected development of Libra, a crypto asset which some members of the U.S. government perceive as a potential alternative to the U.S. dollar, remain as catalysts for renewed retail interest.
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