Update (1225ET): Bitcoin has just crossed above $13,000 for the first time since January 2018, soaring over $3,000 in the last 3 days.
Continuing to track 2017's trajectory...
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After breaching $10K over the weekend for the first time since March 2018, bitcoin has accelerated its sharp move higher and, trading close to $13,000 on Wednesday, up almost 20% in the past 24 hours. It is now up 240% since the start of the year, and even though it remains below its all-time high of nearly $20,000, at the current pace, it will surpass its all time high in just a few days.
The last time Bitcoin rose above $12,000 was in December 2017, when it continued to rally, on some days moving several thousand dollars inhours, eventually reaching its all time high as $19,511 just before Christmas 2017. That surge, however, was followed by a calamitous drop as retail investors fled, with the crypto dropping below $6,000 by February, and hitting $3000 just months later. All in all, in December 2017 and January 2018, Bitcoin spent about six weeks above $12,000.
Will this time be different, is the main question asked by traders. And as usual, the second biggest question posed by traders, investors, speculators and plain old haters is what is the reason behind the move.
According to some, Facebook’s announcement this month has revived interest in coins, while investors seeking safety have also pushed up Bitcoin’s price.
“It obviously does appear to be benefiting from some sort of flows that gold is benefiting, too,” CMC Markets chief strategist Michael Hewson said. “You’ve got all this stuff about Libra going on, which is renewing interest in bitcoin. Crypto is back in vogue.”
That part was right; what he said next, however, was not - he added that the investors buying bitcoin were speculative. That is precisely the opposite of what JPM found last weekend when the bank concluded that the current bout of buying is not retail - as was the case for much of 2017 - but institutional.
Meanwhile, as bulls cheer signs that the next bubble in cryptos is well and truly here, sparked by interest in virtual currencies from major companies like Facebook and JPMorgan, skeptics say it’s unclear how those initiatives will ultimately benefit Bitcoin and its peers.
It is also unclear if Facebook's Libra "crypto" experiment has anything to do with the recent move. To be sure, it's not news as it was well known months in advance that Facebook was launching its "crypto" product, which as explained here before, is not even crypto. Instead what appears to be causing the rush into bitcoin, ethereum and other cryptos is global monetary policy (and Chinese capital flight).
Meanwhile, not everyone agrees with JPM that institutions are now long bitcoin: according to the WSJ citing the latest CFTC Commitment of Traders report, hedge funds and other money managers held about 14% more bearish “short” positions in CME bitcoin futures last week than they did bullish “long” positions,
Other large traders were even more bearish. “Other reportables”—a loose category of firms that don’t necessarily manage money for outside investors—held more than three times as many short positions in bitcoin futures as long ones, the CFTC report shows.
The WSJ concludes that it is mostly small, retail investors who are taking the other side of the trade, in clear disagreement with JPM's conclusion. Among traders with fewer than 25 bitcoin contracts, a category that likely captures many individuals placing bets in bitcoin, long wagers outnumbered short bets by 4 to 1.
“Traditional market participants may be more skeptical of [bitcoin] than millennial day traders,” said George Michalopoulos, a portfolio manager with Chicago fund manager Typhon Capital Management LLC, although he stressed that his views were speculative and that it is hard to know what is driving the CFTC’s numbers.
Of course, if the WSJ is right, it would suggest that a big reason for the bitcoin surge higher is an institutional short squeeze as retail investors are once again proven right.
Finally, for an extended attempt to explain the recent surge in bitcoin, here is a tweet storm from CoinShares Chairman Danny Masters who lays out his, in our opinion, far more accurate take of what is behind the latest bubble in bitcoin.
1/ No, it's not @facebook's "crypto" experiment. My trading instincts say it's dollar weakness.— Danny Masters (@dannylmasters) June 25, 2019
Earlier I had the pleasure of sitting down with @lisaabramowicz1 and @ptsweeney on @Bloomberg to discuss what's fueling bitcoin recent run: https://t.co/PdpCuGE45m
2/ Contrary to many headlines, so far Libra / Calibra does not appear to be a "cryptocurrency."— Danny Masters (@dannylmasters) June 25, 2019
Rather, it represents fiat value transported on cryptocurrency rails.
3/ Because of this, it's inheriting the legal & regulatory hurdles associated with both crypto (difficult) & the legacy banking system (also difficult).— Danny Masters (@dannylmasters) June 25, 2019
Our firm (@CoinSharesCo) is very familiar with this regulatory quagmire.
Facebook certainly has their work cut out for them.
4/ So why might they take on this endeavor? Because of growth.— Danny Masters (@dannylmasters) June 25, 2019
My colleague @Melt_Dem has an excellent piece exploring their motivations: https://t.co/OEUp5a3bvC
More or less, the opportunity to monetize 2.9 billion users is too lucrative even for Facebook to pass up.
5/ Though this news did not drive the recent price movement in my opinion, bitcoin will still benefit when (if) Libra manages to launch as it will provide a new crypto on-ramp for 2.9 billion users while familiarizing them with digital wallets and public-private key cryptography.— Danny Masters (@dannylmasters) June 25, 2019
6/ But if Facebook isn't to thank for the recent price action, what is?— Danny Masters (@dannylmasters) June 25, 2019
As a trader, I always have to look at the larger backdrop.
The main theme I see in the market right now is USD weakness with additional uncertainty injected by the Fed.
7/ Today we're in uncharted territory with central banks & negative interest rates - arguably more so than post '08 financial crisis.— Danny Masters (@dannylmasters) June 25, 2019
This means policymakers are leaving fewer tools to fight the next downturn that inevitably will occur. Investor psychology is notoriously fickle.
9/ Another encouraging sign is that now we have more professional custodians:— Danny Masters (@dannylmasters) June 25, 2019
- Fidelity @DigitalAssets is live
- @CoinbaseCustody too
- @ledgerx just secured @CFTC licenses
- @Bakkt futures supposedly launching in July
(Physical delivery is necessary for any true hedging.)
10/ But don’t get too excited too soon - it's not as if institutions are all of a sudden racing in...— Danny Masters (@dannylmasters) June 25, 2019
Looking at CME volume, I get a different story than they do:https://t.co/R44TZvEFab
11/ Napkin math for CME $BTC futures volume compared to others supports this read...— Danny Masters (@dannylmasters) June 25, 2019
- 1/5th of crude volume
- 1/16th of @Bitmex volume
- 1/100th of gold volume
In my view, we've got a long way to go before we can reasonably conclude that institutional money is here for good.
12/ So to answer the question "is bitcoin back?"— Danny Masters (@dannylmasters) June 25, 2019
My take - yes, bitcoin dominance is back... but only comparatively speaking, of course.
Finally, for those wondering where bitcoin may end up before the current bubble pops, here is the infamous bitcoin "log"chart which see the current hitting $60,000 some time soon.