Bitcoin and Ethereum Show New Momentum After 20% Gain, Is a New Rally in the Works?

Year-to-date, the price of Bitcoin (BTC) is up 40% against the United States dollar, and other major cryptocurrencies such as Ethereum and Litecoin have also demonstrated strong gains in the past four months.

Performance of crypto assets in the past month. Source: coin360.io

Performance of crypto assets in the past month. Source: coin360.io

Litecoin, for instance, recorded a staggering 208% increase in value since January — outperforming most crypto assets apart from a handful, including Binance Coin and Enjin Coin.

From April 1 to April 3, based on CoinMarketCap data, the price of Bitcoin surged from $4,100 to $5,041, by around 22% against the U.S. dollar.

Bitcoin

After experiencing a slight retracement, Bitcoin along with Ethereum and the rest of the cryptocurrency market are showing signs of new momentum, with BTC recently breaching $5,200.

Ethereum

What caused the initial rally on April 1?

The rally of Bitcoin in the first week of April is said to have been triggered by four major factors:

  1. Absorption of an $80 million sell wall at a key resistance in $4,200.
  2. The liquidation of short contracts worth $500 million.
  3. Lack of resistance above $4,200.
  4. The reported purchase by one buyer of $100 million worth of Bitcoin

The $4,200 resistance level has been a roadblock for the near-term recovery of Bitcoin since January, and every attempt to break out of it led the price of BTC dipping below $4,000. As soon as the crucial resistance level was breached cleanly for the first time in 2019, Bitcoin began to move up rapidly toward $5,000.

But, one potentially overlooked factor in analyzing the price trend of Bitcoin in the beginning of April may have been the dominance of Bitcoin futures markets based in the U.S.

Due to the relatively small volume of major futures markets such as CME Group, the impact of futures on the price trend of Bitcoin was believed to be minimal by many.

Danny Les, a former hedge fund manager, told Cointelegraph in February that the downside movement of Bitcoin two months ago was not likely to have been affected by futures:

“I don’t think futures closing made a difference. Just like when the CME Bitcoin markets kicked off and everyone expected it would have a huge effect on price. It didn’t. Same applies here as far as I’m concerned.”

However, on March 22, Bitwise Asset Management disclosed in its presentation to the U.S. Securities and Exchange Commission (SEC) that 35% of Bitcoin trading volume in February was processed through CME and CBOE futures.

“And, when you remove fake volume, CME and CBOE futures volume is significant ($91M), especially compared to the real spot volume (35% for Feb 2019). This is good news because it means CME — a regulated, surveilled market — is of material size, which important for an ETF.”

From March 4 to 8, Binance, the world’s largest cryptocurrency exchange, processed $110 million worth of Bitcoin trades. In the same time frame, according to Bitwise’s report, CME and CBOE processed $91 million.

At least until March, the volume of Bitcoin futures markets in the U.S. neared that of the Bitcoin volume of the biggest exchange in the global cryptocurrency market.

In the future, with CBOE’s reported pullout from the Bitcoin futures market, the share of the futures market in the volume of BTC could change, but in the general scheme of things, Bitwise has shown that futures markets can no longer be dismissed when analyzing the price of Bitcoin.

What can stimulate the next rally?

The liquidation of short contracts and the large volume coming from U.S.-based futures markets were crucial in fueling the momentum of Bitcoin in early April, acting as near-term price catalysts.

Bitcoin has not been in the $5,000 region since early November, and pushing through September and October levels in the $6,000 to $7,000 range would require proper fundamental and technical factors to gain new momentum.

Purely based on fundamentals, the block reward halving of the Bitcoin network that is expected to occur in May 2020 could have an impact on the price of the asset in the near-term.

Historically, as several analysts suggested, the price of Bitcoin has tended to increase in value about a year before its halving.