Last month, Bitcoin broke to new multi-month highs after struggling in a fairly narrow range of multi-year lows. The big move has been in the financial news a bit, and has re-kindled interest in this asset class that is “neither fish nor fowl” (meaning it doesn’t fit neatly into the traditional asset classes). Here’s a chart that shows the move:
The red circle #1 at the far left of the chart shows the price of Bitcoin breaking below the black line that represents the 50-day simple moving average (MA). The remaining #1 red circles show the times that the 50 day MA acted as overhead resistance – fully five times over the next five months.
The first red #2 circle shows when price finally broke through the 50 day MA and turned that line into support that held price for the next 6 weeks.
The red #3 circle shows the big thrust on April 2nd where price finally broke through the down-sloping 200 day MA.
The two big questions on traders and investors’ minds:
- Why did bitcoin move up so strongly?
- Can it keep going?
Here are the most likely drivers of the Bitcoin price surge that has been underway for the last six or seven days:
- Breaking the key technical levels in the chart above (especially the 200 day MA) embolden traders and vindicated the Bitcoin bulls bringing renewed buying into the market.
- The bitcoin “mining reward halving” pattern. In May of 2020 the payment that the sophisticated Bitcoin mining operations get for doing the computing that keeps Bitcoin transactions secure cuts in half. This is a scheduled event in the Bitcoin infrastructure and has happened twice before (in 2012 and 2016). About a year before each of those halving events, Bitcoin price bottomed and then surged. Traders anticipate similar action here as the chart below from coindesk.com shows:
- The biggest reason (in my opinion) for the price surge was large block purchases over a period of days that signaled institutional buyers coming into the market. Reuters reported that an algorithmic order of $100 million was spread across U.S. based cryptocurrency exchanges Coinbase, Kraken, and Luxembourg’s Bitstamp in a synchronized purchase of 7,000 Bitcoins per exchange in an hour, totaling over 20,000 Bitcoins. This higher volume both drove prices up and gave traders encouragement that was there was institutional-sized money in play.
Can It Move Higher?
That gives us some idea of the why moved prices higher. Since the move up, the price of Bitcoin has stabilized at the higher levels and above the 200-day MA – positive signs to be sure.
There is both technical momentum and a sense of money moving into risk assets that support higher prices for cryptocurrencies.
