Our award-winning cryptocurrency writer explains what's behind bitcoin's incredible performance.
What a difference a week makes. Bitcoin is trading at $8,200, up 39% on a week ago for a return of 156% since the beginning of 2019.
That makes bitcoin the best performing asset by some margin and it's got dispassionate observers asking why.
Let's start from the beginning.
A couple of weeks ago evidence started to appear pointing to TD Ameritrade testing bitcoin trading on its platform. This was followed by the news that another top US broker, E*Trade, was also gearing up to start offering trading in leading crypto assets.
Then last week Fidelity Investments announced that it would start offering bitcoin trading to its institutional clients. With $2.4 trillion in assets under management, that certainly got everyone’s attention.
If that wasn't enough to get the juices going though, more details about Facebook's (NASDAQ:FB) crypto efforts came out, including reports that the social media giant was talking to crypto exchanges about listing the coin.
And Facebook wasn't the only US heavyweight getting into crypto. Nike (NYSE:NKE) has filed a trademark for "cryptokicks" with a plan to launch a cryptocurrency to be used, among other things, for buying collectibles such as limited-edition footwear.
New York Blockchain Week
All this came in the run-up to the New York Blockchain Week, the largest annual gathering of the crypto community.
In past years the week has seen spikes in bitcoin and other crypto prices as companies often choose to make their big announcements at the week's events, especially at the premier gig, Consensys.
True to form, those announcements have started to flow, helping to sustain the weekend mega-rally.
Microsoft (NASDAQ:MSFT) is testing an ID management system on the bitcoin blockchain. Amazon's (NASDAQ:AMZN) Whole Foods chain is now accepting bitcoin. So too is Starbucks (NASDAQ:SBUX), Barnes & Noble (NYSE:BKS) and a host of other household-name US companies.
Then news broke that Bakkt, the long-awaited crypto ecosystem being built by New York Stock Exchange owner Intercontinental Exchange, will start user testing of its Bitcoin futures product in July. Unlike the existing futures products available at the CME and CBOE derivatives exchanges, the Bakkt one is physically settled, which will add liquidity to the market.
Proving to be an uncorrelated asset
The parabolic take-off is even more striking given the state of equity market in the past few days, as markets mispricing of the risks to the global economy associated with the US-China trade negotiations appear to unravel. That is a clue to the power of this crypto rally.
To describe bitcoin as a "safe haven" asset would be a stretch at this juncture, although it certainly appears to be acting as such, which is in itself enough to attract buyers.
The uncorrelated behaviour of bitcoin vis a vis equities has been noticed by investors of all stripes.
The equity market's 2019 surge has been based on what some have called the "Three Puts": the Trump Put of tax cuts for corporate America; the Xi Stimulus Put in China and the Jerome Powell Put, which saw the dramatic u-turn in Fed monetary policy when he slammed the breaks on interest rate hikes and running off its balance sheet (a 'put' is a type of option trade which can be used to limit losses).
A hedge against Quantitative Easing (QE)
It is the 'Powell Put' that Travis Kling, chief investment officer at Ikigai Asset Management speaking on Yahoo Finance, identified as critical to bitcoin's recovery
Although the Three Puts have not broken down, the trade war is a threat to the bullish backdrop.
"Trump started chastising the Fed and the crazy thing is it worked and January 30th you had this complete capitulation into dovishness, tightening totally on pause and accommodation by any means necessary… These guys have no plan to end the largest monetary policy experiment in human history and bitcoin is a hedge against that. It is a way to opt out of quantitative easing," Kling maintains.
Chinese investor capital flight boosts bitcoin
That leads us into the related matter of the trade war itself and in particular the attitude and actions of Chinese investors.
Although China closed crypto exchanges in the country and banned initial coin offerings, it didn’t move against the over-the-counter (OTC) market.
This means it is still possible for investors to buy bitcoin in the OTC markets.
It looks like one response from worried Chinese investors reacting to yuan depreciation is capital flight. To achieve that end, bitcoin proves a useful conduit.
According to Harpal Sandhu, the chairman of Mint Exchange, which acts a portal for OTC markets around the world, volume has tripled in the past two weeks
Sandhu told US investment news outlet Barron's: "This is capital flight coming out of China because of trade." And it's by no means just large investors who are moving funds through the bitcoin conduit.
"Our read is that this is largely retail driven," he added.
Bitcoin to $20,000 by 2021 says Canaccord Genuity
A mention should also go to investment firm Canaccord Genuity. In a US equity research paper the investment bank predicted that "theoretically" bitcoin could return to its circa $20,000 highs by 2021.
The report's prediction is based on improving network fundamentals such as transaction volume and progress on the scaling issue.
However, the research does also reference the halving of block rewards that has been much talked about in the crypto community – the bitcoin price tends to get a boost from halving, which comes around roughly every four years, with the next one due in May 2020 (with the reward paid to miners dropping from 12.5 to 6.25).
It is worth quoting at length the thought of Canaccord's analysts:
"Now four months into 2019, we note for the third time the striking similarity in Bitcoin's price action between 2011-2015 and 2015-2019. While this simple pattern recognition has little fundamental basis, we note that Bitcoin does operate on a four-year cycle of sorts, as the halving of its mining reward occurs approximately every four years."
"It has started to form the spring 2019 bottom we began mentioning last year, although a close look at the chart suggests the recovery may be slightly ahead of itself. Looking ahead, if it were to continue following the same trend, the implication is a slow climb back toward its all-time high of ~$20,000, theoretically reaching that level in March 2021."
It's not just bitcoin on the rise
As we have been arguing this year, bitcoin has been repairing the damage as it moves off the low of $3,200, seeing a reclaiming of the $6,000 level as pivotal to definitively calling the bottom of the bear market.
But it would be churlish not to admit that the accelerating breakout was not foreseen, although it had been noted that resistance above $6,400 could be thin until $10,000.
Bitcoin has seen two single-day $1,000 gains as the red-hot market over the weekend sees momentum continue.
Altcoins (all coins other than bitcoin) are belatedly catching a bid, although bitcoin market dominance has risen to 59.85%.
Ethereum has broken through the $200 mark to trade at $207, Ripple's XRP token is 20% higher today at $0.3762, Bitcoin Cash 12% better at $394.
Volume is off the charts at $105 billion. Daily transactions volume was a meagre $10 billion a day at the start of the year and only $23 billion at the start of April, according to coinmarketcap, which takes data from exchanges accused of wash trading to inflate the numbers.
Fundstrat analyst Thomas Lee, formerly head of equity strategy at JP Morgan, thinks bitcoin at $10,000 will likely see the triggering of the fear-of-missing-out (FOMO) frenzy from retail investors that characterised the climbed to $20,000.
HTC and Samsung crypto phones
In another boost for crypto, certain smartphone manufacturers are grasping the crypto opportunity.
HTC has announced that it is releasing a phone in the third quarter that will be able to run the bitcoin full node. That would enable direct interaction with the bitcoin blockchain direct from the mobile device, although the node would not be able to mine the currency, says HTC.
Samsung which has already included a crypto wallet for Ethereum-based ERC20 tokens in its top-line Galaxy S10 range, said today that it would be adding the wallet to its cheaper lines also.
That could be a big boost to crypto adoption, by both introducing millions more to crypto and making it easier for consumers to safely store their tokens.
UK's Online Blockchain is building
Alternative Investment Market-listed Online Blockchain has followed up on its FreeLoadr product, where those who install the software can earn crypto from mining, with another product called FreeFaucet.
By signing up at freefaucet.io, consumers can access available faucets of a number of crypto project, where tokens are given away to those who perform a given task, such as posting a tweet. Freefaucet.io also provides a multi-currency wallet for storage of the faucet proceeds and access to monthly "airdrops" of tokens from crypto mining tool Bitferno.
The new site also include a Geofaucet feature which it claims is the first of a kind, where QR codes can be scanned to receive free tokens and users can even set up their own ones.
"There is an unbridled interest in cryptocurrencies; Freefaucet offers a gateway to this market and enables established cryptocurrency enthusiasts and novices alike to earn free cryptocurrency with just a few clicks," said Clem Chambers, chief executive of Online Blockchain.
You can hear Chambers predict the current bitcoin rally in this recent interview with interactive investor.
Switzerland's UTRUST wins regulatory approval as financial intermediary
Elsewhere in Europe crypto payment company UTRUST has been granted Self-Regulatory Organization (SRO) approval status by Switzerland's financial regulator – FINMA, according to a press release.
Switzerland has emerged as something of a hub for crypto because of crypt-friendly legislation in the country and its "brand reputation" for privacy.
UTRUST's products are used by merchants and its new regulatory status enables to operate as a financial intermediary under the Swiss Anti-Money Laundering Act.
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