Five Solid Long Term Fundamentals Driving Bitcoin’s Price Higher
Bitcoin’s price poked through $7,000 over the weekend for the first time since Sept 5th, 2018, then pulled back Sunday ending a stunning six day parabolic rally from $5,700 on May 6th. Then it rocketed back up again Monday in an approach to $8,000. Investors in digital assets are on the spot. Is bitcoin’s price rally a bubble full of FOMO or a more permanent shift to a new normal for bitcoin’s price?
There are at least five good reasons to believe the fear of missing out might be well founded. Bitcoin’s price seems buoyed by a rising tide of market adoption and capitalization that is moving to bitcoin to stay.
A tidal wave of institutional investment in custodial infrastructure to offer bitcoin to big investors is pushing the price higher. The supply of remaining bitcoin grows smaller every day. Technical market signals are favorable to a long bull run. There are a record number of bitcoin hodlers. And investors are making more whale sized purchases.
1. Institutional Investment Driving Bitcoin’s Price
Crypto made more progress in institutionalization in 12 months than in previous 9 years.
– $40M from 2 public pension funds in the U.S.
– $237 million invested by institutions through Grayscale
– Fidelity and ICE building infrastructure
– Major exchanges operating as custodians
— Joseph Young (@iamjosephyoung) February 17, 2019
There can be no doubt that a massive wave of institutional investment is driving bitcoin’s price higher. In December the Intercontinental Exchange, the company that owns the New York Stock Exchange, announced it had raised $182 million to build Bakkt, its own global cryptocurrency exchange. In February NASDAQ launched exchanges for Bitcoin and Ethereum. In March Boston-based investment bank Fidelity Investments, a financial services company managing $7.2 trillion in assets, launched a bitcoin custody serviced called Fidelity Digital Assets.
Wall Street’s aren’t the only deep pockets that have been heavily capitalizing the bitcoin industry lately. Silicon Valley investment in Bitcoin is showing too. Square Payments’s Cash App added bitcoin a bitcoin custody service in November 2017. Cash App has 7 million active users. In February it became the second most popular free mobile application on the Apple App Store. E-trade just launched Bitcoin and Ethereum trading to its securities platform boasting 5 million customers.
2. Third Bitcoin Halvening Is Driving Demand
One of the major determinants of demand that affects bitcoin’s price is its limited supply. Bitcoin is designed to be a deflationary currency with a total supply never to exceed 21 million. To achieve that the block reward for bitcoin miners decreases by half every 210,000 blocks or about four years. So far there have been two halvenings and after each halvening event bitcoin’s price sees a substantial increase with staying power and strong underlying lines of resistance. It will likely be more dramatic this time.
After the very first bitcoin halvening on November 28 2012, bitcoin’s price did drop by half, but quickly recovered and remained above the $1250 level thereafter. One year after the second bitcoin halvening on July 9, 2016, bitcoin began its historic bull run to $20,000, making it the best investment in world history. With over 80% of the total bitcoin supply already mined, each new halvening will underscore the limited supply of coins on the world’s oldest, most secure cryptocurrency blockchain.
3. Bitcoin’s Price Made A Golden Cross This Spring
A golden cross is formed when the 50-day moving average for the price of a security overtakes the 200-day moving average and crosses over a key line of resistance. Market watchers view a golden cross as a strong bull signal. Bitcoin’s price formed a golden cross on April 22nd, after a three week bull run touched off by a whale sized purchase on April 2nd. In the 21 days since marking a golden cross on the charts, bitcoin’s price has increased by 42%.
Moving averages are used by investors and securities traders in technical analysis because they give a good sense of the underlying fundamentals and broader center of gravity of the market. By comparing the relative moving averages of time periods of various size, securities analysts filter out noise caused by randomness, chaos, and nerves. So this market signal reveals strong market fundamentals underlying bitcoin’s price increase.
4. There’s A Record Number of Bitcoin Hodlers
Bitcoin accumulation is heavy in 2019. The demand from institutional and whale size investors, every day people saving or investing their money in bitcoin, and people in developing economies with volatile currencies is currently insatiable. But even as more people buy bitcoin, pushing bitcoin’s price higher and higher in 2019, fewer and fewer people are selling bitcoin to take profits. With unspent transaction outputs reaching new records, the number of bitcoin hodlers is at an all time high.
This isn’t the market behavior of speculators wanting to get rich quick. There would be more people selling off to take profits at this time. Instead people are dearly holding onto their precious bitcoin. That shows the level of confidence all the demand has in bitcoin’s prospects as a long term store of appreciating value.
The intransigently deflationary economics inherent in bitcoin’s design, along with the completely unmatched network effect, size, and security of is blockchain have done exactly what Satoshi Nakamoto had in mind. Bitcoin’s designers knew the fledgling currency would need this edge to grow into a viable and then invulnerable currency blockchain network before it could be stopped.
5. Whales Are Doing Belly Flops Into The Pool
It’s not only bitcoin’s price that’s rocketing off the charts lately. Bitcoin transaction volume has been heavy amid the current bull run. Whales are moving massive amounts of the coin. And they’re not selling it either. Many are buying and many are pulling their bitcoin off of exchanges and moving it to unknown wallets. That’s a move to consolidate and hold bitcoin, not to sell it off or trade it for any other coins anytime soon.
The current bull run was touched off by a whale sized purchase of 20,000 BTC for $100 million USD on April 2nd. The buy order was executed via algorithm over three exchanges: Coinbase, Kraken, and Bitstamp.
Since then as bitcoin’s price cut a meteoric path up the charts, whales have been locking up massive amounts of bitcoin off exchanges. In one 24 hour period, out of the 20 largest transactions on the blockchain, only two moved money onto exchanges from an unknown wallet. The rest moved massive amounts of liquid bitcoin off exchanges, or from one unknown wallet to another.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock.