Five Reasons Why Bitcoin is Surging
If you’re a cryptocurrency trader, the events of the last 24 hours look and feel a lot like 2017, the year that bitcoin and altcoins took the world by storm with mind-blowing returns. Bitcoin’s sudden and sustained breakout has created a sense of panic among those who neglected to accumulate during the depths of the bear market. The fear of missing out, or FOMO, is exerting a strong gravitational pull on market participants who believe that the days of ultra-cheap BTC are long gone.
We’ve spent the past few days analyzing the market and cautioning investors not to to over-commit themselves amid the sudden bout of crypto euphoria. Rest assured, bitcoin will in all likelihood experience a sharp pullback at some point in the near future. So unless you are cost-averaging BTC regardless of its price, don’t let FOMO control your decision-making. Given that humans are hard-wired to experience FOMO, this won’t be easy.
All of this is just a long-winded introduction to the main topic of this article: why bitcoin is surging. We have identified five main reasons. As you are reading these, keep in mind that the seeds of recovery were planted several months ago shortly after bitcoin bottomed. Growing institutional interest, the return of retail traders and extremely oversold conditions allowed us to conclude that ‘crypto winter’ is officially over. The events of the last few months have only strengthened our conviction that the worst is behind us.
Here are the five main reasons why bitcoin is surging.
Heavy Accumulation
Back in January, Hacked concluded that 2019 will be bitcoin’s year of accumulation. This is exactly what we’ve observed over the past four months. As the following accumulation/distribution (A/D) line illustrates, bitcoin has been in a heavy accumulation phase since the beginning of March.
The A/D line, which is cumulative, has been rising in lockstep with bitcoin’s value. A rising A/D line essentially confirms a rising price trend. It also indicates that more people are accumulating than distributing.
Unspent Transactions
As YouTuber Crypto Daily recently pointed out, the number of unspent transaction outputs on the Bitcoin network has surged to record highs. In fact, the number of unspent transactions has been increasingly in linear fashion since mid-2018 and this trend began to intensify in January of this year. This means fewer people are selling bitcoin and buyers are accumulating and holding their positions indefinitely.
Bitcoin Whales
Although bitcoin has been in accumulation since the start of 2019, it was a mysterious bitcoin whale that sparked a 20% rally at the beginning of April. The whales have continued to transfer large sums of bitcoin over the past two months. The cryptocurrency’s performance over that stretch suggests oversized holders have emerged as net buyers rather than sellers.
It wasn’t always obvious that the whales would become buyers instead of sellers. To learn why, read: Bitcoin Likely Headed Lower as Whales Activate Long-Dormant Accounts.
Twitter user Whale Alert has reported hundreds of thousands of BTC on the move in the the last 24 hours. According to Chepicap, whales have moved 167,000 BTC ($122 million) in the span of just two hours. Could another whale pump be on the way? We will have to wait and see.
Bitcoin Dominance
Bitcoin’s parabolic surge has been accompanied by a sharp increase in the so-called dominance rate, which refers to the percentage of the cryptocurrency market held in BTC. Bitcoin’s dominance rate peaked at 59.4% on Sunday, the highest since December 2017. This means members of the crypto ecosystem have shifted their holdings from altcoins toward bitcoin, and have done so with greater intensity.
Does this mean that altcoins and tokens are getting purged from the ecosystem? Not at all.
The cryptocurrency market goes through trends and cycles, some of which favor altcoins and tokens whereas others seem to show greater preference for bitcoin. In fact, bitcoin’s dominance rate briefly fell below 50% in March as altcoin and tokens surged. The likes of Litecoin (LTC), bitcoin cash (BCH) and Binance Coin (BNB) were the primary large-cap leaders in the first quarter. Small-caps like Basic Attention Token (BAT) and Tezos (XTZ) were also strong performers.
While the cycle seems to have shifted back in favor of bitcoin, altcoins and tokens are finally getting a piece of the action. Read more: Crypto’s Insane Pump Continues as Bitcoin Cash, Cardano and the Rest of the Large Caps Join the Rally.
Uncorrelated with Global Market
Last week, Hacked reported on the extent to which bitcoin has outperformed other major asset classes. Following the latest surge, bitcoin has returned a whopping 87% year-to-date. No other major asset class even comes close – not stocks, bonds, crude or even lean hogs.
As Kiril Nikolaev recently pointed out on CCN, bitcoin’s recovery comes at a time of heightened political and economic turmoil facing the world economy. The U.S.-China trade war is only the tip of the iceberg.
The International Monetary Fund, World Bank and Organization of Economic Cooperation and Development have all cut their outlook on global economic growth. Central banks in Europe, North America and Asia have had to re-think their monetary policy amid signs of slowing growth and deflation.
Against all this, bitcoin has demonstrated its value as an uncorrelated asset class. Basically, investors feel confident in using bitcoin as a store of value to shield against global volatility.
Bitcoin’s haven status is so strong that it has also managed to shrug off nasty headlines within the cryptocurrency industry. This shift in investor sentiment cannot be disregarded when evaluating the current bull trend.
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.
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