Making Sense of Bitcoins New All Time High
Bitcoin has for the first time in history surged above the $8,000 mark today. This follows fast on the wake of a 29% slump barely a week ago. Market data shows a possibility of maintaining the bullish trend as in the past 24 hours trading volumes in cryptocurrency markets have surpassed $10 billion. At press time though, the price had gone back down to the $7,600 range.
Possible Explanations for the Upsurge
Only three days ago, the virtual currency had lost over $38 billion in market capitalization. This was mostly attributed to the infamous hard fork cancellation. Some crypto experts claim that there are rumors of renewed interest in the SegWit2x upgrade. According to the Head of Research at Blockchain Capital, Spencer Boggart, there is a group in the community that will follow through with the hard fork. This, he suggests, might be causing investors to move capital from other crypto assets and into bitcoin.
Hashrates on the network have stabilized thanks to a difficulty adjustment. This has resulted in higher mining profits and reduced transaction backlog. Over the past week, miners reported erratic hashrates and inflated difficulty and this had subsequently resulted in higher transaction fees. But with these issues having been rectified, a level of normalcy has returned to the community. This is another logical explanation for the record performance.
In the first week of November, Goldman Sachs market strategies VP, Sheba Jafari, had predicted that the coin would consolidate around $8,000. She said that since bitcoin broke the $6,044 barrier, the market had shown proof of “an impulsive rally”. According to Jafari, the virtual currency is unlikely to experience any major downturn in the near future.
Reassuring regulatory developments could also explain the increased investor enthusiasm. The Head of CME, Terry Duffy, explained that once the bitcoin futures product is launched, they will put in place a control mechanism for the current volatility. For instance, the futures will not trade at prices 20% above or below the previous day’s settlements.
But there is no consensus around the issue as other experts continue to cast doubts on the currency’s potential. The Chairman of Interactive borders, Thomas Peterffy, in response to CME’s plan, said that it is impossible to margin such a volatile product “in such a reasonable manner”. He added that the product would not work but would instead endanger other futures products in the market.
Others opine that government legislation and regulation will be digital currency’s downfall. In fact, while some governmental authorities are enforcing strict restrictions to govern operations in the crypto world, others have elected to ban bitcoin altogether. This is the case in Nepal, Bangladesh, Ecuador, Kyrgysstan and Bolivia.
The prevailing reasoning behind these bans is that they lack the means to control trade on the decentralized platforms. Ecuadorian authorities for instance explain that they are not necessarily opposed to virtual currency. But they would like to regulate it and possibly even tether it to the local currency. As is the case with most prohibitions, these restrictions have not managed to stop the trade but have only pushed it underground.
It is hard to fight against facts and right now the facts are in favor of Bitcoin. As always, trading in this or any other cryptocurrency requires caution. No one knows for sure how far the current wave will go. But for now, the currency seems set for greatness.