After a year of sliding interest Bitcoin is suddenly back in the news. And as is customary, the headlines have been largely generated by price volatility. Last Tuesday the benchmark cryptocurrency surged by 23% in an hour to roar back above the $5000 level. There was no obvious reason for the biggest Bitcoin price movement since the cryptocurrency mania of 2017 but it erased the gradual losses of the previous 5 months in one fell swoop.
One theory is it could have been the result of an April Fool’s joke. A joke article that the SEC had approved a Bitcoin ETF appeared on a minor news website. But that wouldn’t fully explain why the upwards trajectory then continued. Until today, when Bitcoin has dropped over 4%. So what is going on with Bitcoin? In other cryptocurrency news today a new Visa debit card was announced that will allow Bitcoin holders to spend them on everyday goods and services.
The card, a partnership between cryptocurrency exchange Coinbase and Apto Payments, converts the cryptocurrencies into fiat based on the current exchange rate. The crypto balance is then deducting from the holder’s account on the Coinbase exchange. The card is launching first in the UK and then Europe later in the year with the U.S. likely to follow.
Is the renewed Bitcoin volatility being spurred by optimism background work on cryptocurrency infrastructure is set to lead to a new, more mature movement to crack mainstream finance?
The most likely explanation for the big Bitcoin price leap last week was that a large investor, perhaps institutional, took a major position. The cryptocurrency market is still shallow enough that a single order in the high tens or low hundreds of millions of dollars could well result in a 20% plus price surge as Bitcoin for sale quickly hoovered up. That would also hit shorters hard, forcing some to sell up positions, further boosting price.
Which, in combination with other buyers speculating on the beginning of a new bull market, could explain the continued upwards price direction that held for the next 8 days.
The question now becomes if today’s 4% drop represents a ‘technical correction’ taking some heat out of the market before it resumes an upwards march? Or if the bull run of the last week was an aberration and Bitcoin will drop back towards the $4000 level where it has remained stagnant for most of this year?
It’s too early to tell but there are some positive signs for those investing online in cryptocurrencies and Bitcoin. The number of ‘active addresses’, wallets that Bitcoin is being bought and sold for, is up 26% since January this year, suggesting growing, broad based activity. Developments such as the Coinbase cryptocurrency Visa card are symptoms of the infrastructure that would support a more mainstream finance role for cryptos that has been steadily built up over the year largely out of public consciousness.
Institutional involvement is still what will likely make or break Bitcoin and the cryptocurrency movement in at least the medium term. With that in mind a lot relies on Bakkt. Bakkt is a planned regulated Bitcoin futures exchange being set-up by NYSE owner Intercontinental Exchange, one of the largest financial exchange operators in the world.
Things went quiet after the initial announcement last year but PayPal and Google veteran Mike Blandina has just been hired as Bakkt’s new chief product officer. The project has not gone away and its launch could prove a catalyst for institutional investors to get involved. The cryptocurrency story may well not be over yet. Or perhaps the most recent attempts to mainstream cryptos will also fail to pass the hurdle of mainstream financial acceptance and prove a death knell. Stay tuned!