Bitcoin is a digital currency created in January 2009. It’s the world’s largest cryptocurrency by market capitalization. Currently, it leads the cryptocurrency rally by a long margin.
It follows the ideas set out in a whitepaper by an individual named Satoshi Nakamoto who stopped working on the project and left in late 2010.
The identity of the person who created Bitcoin remains unknown till date.
But that has not impacted the growth and price of Bitcoin (BTC) especially after it was catapulted into the mainstream in 2017 where the price rose from less than $1000 to almost $20,000 in just under 12 months.
This resulted in dozens of early investors turning into millionaires overnight.
As of June 2021, Bitcoin stands tall at the price of over $32,000.
We suspect that the following could be the reasons behind the Bitcoin Cryptocurrency Rally.
Table of Contents
1. The Tether Effect.
2. Increase in Participation of Institutions.
3. Lack of Supply.
4. Technical Breakout
1. The Tether Effect
John Griffin and Amin Shams, finance professors at the University of Texas and Ohio State University respectively, conducted research and found out that around half of Bitcoin’s value between 2017 and 2018 was created by trades between Bitcoin and Tether.
Tether (USDT) is a stablecoin, a type of cryptocurrency which aims to keep the cryptocurrency valuations stable.
Tether is used by crypto investors who want to avoid the extreme volatility of other cryptocurrencies while keeping value within the crypto market.
In 2019, Tether surpassed Bitcoin in daily and monthly trading volume and became the most traded cryptocurrency in the market.
Though it is no longer the case and the king of crypto, Bitcoin, has reclaimed the number one spot in that regard.
According to the researchers, an unidentified Bitfinex account used tether to manipulate the Bitcoin price by creating unprecedented demand for the digital token.
It also has become the preferred method to buy and sell Bitcoin, with CryptoCompare estimating that Tether is used to buy some 66% of Bitcoin in the crypto market.
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2. Increase in Participation of Institutions
The world’s largest cryptocurrency jumped as much as 4.9% to $50,548 and hit a record high of $64,870 on April 14th.
JPMorgan’s John Normand wrote, “Bitcoin’s ascent has been steeper than any other financial innovation or bubble of the past 50 years”.
“Over the past eight weeks, we have seen various notable public companies and hedge funds enter the cryptocurrency market with sizable deployment of capital”, said Matthew Dibb, co-founder, and COO of Singapore-based Stack Funds.
On September 15th, MicroStrategy announced the purchase of $250 million worth of Bitcoins, following which, a payment company called Square invested 1% of their assets resulting in a purchase of $50 million Bitcoins.
Considering all this, we can safely say that the increased participation of institutions resulted in the Bitcoin cryptocurrency rally and created an upward trend in prices.
Furthermore, the sudden increase in the price of BTC also prompted buyers to invest in the crypto market which also played a role in the cryptocurrency rally.
3. Lack of Supply
Large buyers that mostly are institutions such as Tesla, MicroStrategy, etc. have created a shortfall in the liquidity of Bitcoin, resulting in pressuring the prices to go upward.
Furthermore, retail investors have taken direct custody of their Bitcoins by moving them from exchanges to their personal wallets.
This act stops the flow of Bitcoin and its trade while also contributing to the drying up of sell-side liquidity.
Stats show that the decline in the exchange balances indicates that users have been holding onto their cryptocurrency, hence making the Bitcoin cryptocurrency rally even more prominent.
4. Technical Breakout
A breakout is when prices pass through and stay through an area of support or resistance. On the technical analysis chart, a break-out occurs when the price of a stock or commodity exits an area pattern.
A breakout on 7th June can be seen in the chart above. Around $37,000 is the break that has been pointed out as the level to beat for the bulls.
Indeed the eventual breakout above $37,000 seems to have invited more buyers to invest in Bitcoin resulting in a cryptocurrency rally up till 14th June.
To sum up, it is apparent that Bitcoin leads the cryptocurrency rally by a country mile compared to its competitors. Analysts predict that Bitcoin can go as high as $1M in the coming 5 years.
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To read more about cryptocurrency, see also: PayPal To Allow Cryptocurrency Spending