Bitcoin has enjoyed a recordbreaking rally this year. Its price has risen nearly two-thirds in the last 12 months. Some analysts say the recent spike indicates that a longer-term bull market is underway. However, others warn that a high level of volatility can be troublesome. There are a number of factors affecting the value of the leading cryptocurrency.
First, a record number of entrants have entered the digital currency space. Mastercard announced that it would begin accepting Bitcoin payments and PayPal is also a major player in the crypto world. Other companies, including BNY Mellon, have made moves into the sector. In addition, investors are using the currency to hedge against inflation and uncertainty in the financial markets.
Another factor driving the crypto boom is the rise of institutional investment. The world’s largest money manager recently altered its mandate to include a portion of its portfolio in the currency. This bolsters the credibility of the asset, while attracting the attention of big Wall Street names.
While the currency’s price is rising, its supply hasn’t been keeping up with demand. This is why prices are moving in a range. Until supply and demand match, a dip in the price could be imminent. At the same time, if other coins are more valuable than Bitcoin, then demand for it will fall.
A third factor influencing the price is speculation. Speculators are looking for outsized returns on riskier assets. They might be tempted to sell a position, and the result could be a pullback. These scenarios can be mitigated by buyers waiting for a drop in RSI levels.
While it’s true that a large number of entrants have joined the market, there are also some whales in the space. Large, deep-pocketed traders are buying in anticipation of a long-term rally. According to ARK36’s analyst Jacob Skaaning, the on-chain data suggests that these speculators are not selling off their holdings.
A recent report from Bloomberg suggested that Morgan Stanley may be making a bet on the digital currency. That move has fueled a surge in the price of Bitcoin, which climbed more than six percent over the weekend. As a result, the market capitalization of the leading coin reached $880 billion, the highest since May 2018.
More recently, a new announcement from Tesla Inc. – which has plans to accept the currency as a form of payment – added US$1.5 billion to its balance sheet. Although this was an impressive move, it was not enough to fuel the digital currency’s biggest one-day gain in history.
With record amounts of stimulus being injected into the economy, a few analysts worry that the currency is entering a bubble. But other institutions and regulators are trying to address the growing concerns about the crypto world. If they succeed, it could be a game changer for the industry.
Last month, the Bloomberg Financial Conditions Index turned positive for the first time in more than a year. The index is a measure of the strength of U.S. economic activity and is seen as a strong indicator of the next wave of the crypto boom.