Why Bitcoin Jumped, And What Happens Now

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Sometimes, you need to write the article because the event is too big to ignore. That doesn’t mean that you are required to understand exactly what happened, or why, however, which is good, because the cryptocurrency market is a little mysterious at the best of times.

A look at the data on CoinWatch.com shows that this week has seen one of the big events. We now find ourselves in an anomalous position, with Bitcoin and the cryptocurrency market generally, of trying to explain a massive spike in value.

What happened was this: Cryptocurrencies jumped, with the total crypto market cap gaining almost 11% on Tuesday, April 1. Bitcoin (BTC), whose $88.20 billion market cap makes up slightly more than 50% of crypto’s total, drove the rally by adding 18% that day. Other crypto coins also showed gains, with Ripple (XRP) adding 13% and Ethereum (ETH) putting on 16%. Together, these three coins make up some 80% of the cryptocurrency market.

Some Possible Reasons

Initial reports, circulated by Bloomberg, suggested that an April Fool’s joke may have contributed. A widely circulated article, which turned out to be a prank, said that the SEC had approved bitcoin-backed exchange trade funds. As with many “facts” that sound too good to be true, this one wasn’t. But it did make the rounds before it was debunked.

The prank-gone-right theory just doesn’t seem plausible. In fact, it even seems like a prank. Bitwise CEO Hunter Horsley said of the prank rumor: “It’s absurd to believe this market move is the result of confusion about the Bitcoin ETF filings. Though ETFs and April Fools are topical, there are lots of reasons this is an unlikely explanation.”

What seems more reasonable is that Bitcoin, which was designed from its beginning to be both scarce and non-renewable, faced a sudden shortage. The networked virtual mining operations that produce bitcoins have slowed down over the past year as crypto went through its price collapse. That slowdown makes an impact in a market that normally shows low trading volumes – typically between 75 and 125 million BTC per day.

And trading volumes brings us to another point: trading activity in the bitcoin exchanges spiked sharply in tandem with the jump in value. This chart, tracking Bitcoin’s daily trading volume, shows how the market looked from March 1 through April 4. The spikes in trading volume on April 2 and 3, reaching well above 800 million, are clearly visible:

The usual low trading volumes, however, make cryptos vulnerable to sudden variations. Per Reuters, an anonymous trader placed a major buy order on Tuesday, totaling more than $100 million. The move triggered a surge in value, which in turn drew in more traders, and initiated an upward spiral of price and trading. Mike Novogratz’s Galaxy Digital crypto bank said, in a note addressed to its clients, “Over the last few weeks, some degree of complacency and dealer positioning had left the market vulnerable to an explosive upside move.”

A Good Month for Crypto?

Whatever the cause, the fact remains that Bitcoin has now shown gains for 6 weeks in a row. While this is not unprecedented in the history cryptocurrency trading, it has been well over a year since Bitcoin last showed such an extended run of gains.

Whether or not the gains will prove durable is another matter, but cryptocurrency analysts are cautiously optimistic on the issue. Brian Kelly, the well-known Bitcoin bull, sees plenty of support for the cryptocurrency in this rally: “You’re starting to see a fair amount of institutional interest in this. And by institutional, I mean even high net worth individuals, family offices are starting to take a serious interest… There’s quite a bit going on under the surface.”

Thomas Lee, of Fundstrat, also sees this rally persisting, for reasons made clear in technical analysis: “Definitely a positive development that Bitcoin is now above its 200-day moving average.”

As for the other cyptocurrencies, both Ripple (XRP) and Ethereum (ETH) are now down from their Tuesday peaks. Ripple is trading at $0.33, down 7% since Tuesday, while Ethereum stands at $161, for a two-day loss of 2%. The three biggest coins remain well above their recent low points, reached in mid-December.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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