What’s behind May’s Bitcoin Rally?
After 14 months of total uncertainty, where prices went from $20,000 down to $3,200, Bitcoin appears to be back from the ashes and is trading, at the time of writing this, around $11,000AUD or 150% up from its bottom. The sudden rally came, as usual, in a relatively short period of time and was driven by many factors. While some of these factors might be sustainable, others might simply have a temporary effect. In this article, we will briefly discuss key factors that have affected Bitcoin and other cryptocurrencies recent spike.
A major factor that played a role in this rally was the 2019 Consensus Conference that is held each year during the month of May in New York. This conference is one of the rare events that gather high profile members from the Fintech industry and is usually an opportunity for major announcements, which can impact cryptocurrency prices either positively or negatively. This year was no exception as lots of positive fundamental announcements were made, as well as promising plans by multiple tech giants such as Microsoft, Bakkt and eBay.
Another key factor that helped trigger the rally was Binance’s massive buying operation of +7,000 Bitcoins. This operation has occurred after the cryptocurrency exchange was partially hacked earlier this month. In opposition to expectations, Bitcoins price did not fall after the breach announcement as Binance quickly moved to purchase more Bitcoin in order to reestablish confidence, refund affected customers and reinforce its cryptocurrency reserves.
The upcoming Bitcoin halvening also appears to be playing a key role in the current market movement as the crypto community and the driving psychological factors behind major market players begin to take this into consideration. By May 2020, miners will only be rewarded 6.25 Bitcoins for each mined block instead of the current 12.5 Bitcoins. The aim behind this scheduled operation is to stabilize Bitcoin supply throughout the years and thus limit inflation. The Bitcoin halvening has already occurred twice, first in 2012 and then in 2016. Each time, it drove prices higher.
There is another speculative theory at play as well, which is currently only a theory and no solid economical evidence has been provided to support it. That is the escalation of the trade war between the USA and China. Some have theorized that this trade war has resulted in a flood of Chinese wealth being poured into Bitcoin which represents a relative sanctuary against economical downturn and turmoil. If nothing else, a great deal of Bitcoin is owned by Chinese investors who see it as a way to diversify their portfolios and provide an avenue for a possible quick return.
Although it appears that the extreme crypto Winter that we experienced in 2018 is over and we have entered a new era, it is still very clear that lots of negative aspects associated with the 2017 hype continue to make a mark and could cause resistance against Bitcoin price movement. Herd behavior and speculation among investors have also played a role in the current rally. Large price swings are as frequent as they used to be and the fear of missing out (FOMO) is, again, ever present.