The sudden increase in Bitcoin’s value was met with much fanfare and further speculation as to what caused the massive volume in trade in the preeminent cryptocurrency.
There are a number of reasons for Bitcoin’s sudden surge in price and they have seemingly worked in tandem to boost the virtual currency’s value. While the exchange rate of Bitcoin stands at around $8,157 after the weekend (at the press time), it’s about time to sum up all the factors.
In layman’s terms, a short squeeze is caused by a turnaround in a stock’s price which forces short sellers to close their positions which in turn forces the price of a stock even higher.
Bitcoin has endured a bearish streak since it’s all time high of $20,000 in December. However, as tensions have eased somewhat, short sellers were hard pressed to close their positions to prevent further losses as Bitcoin began to rally on Thursday.
Tax sell-off over
A lot has been made of the effect the tax return season would have on American investors. Fundstrat’s Tom Lee predicted a big sell-off in April as Americans geared up to pay the tax office this month.
However Dash Core CEO Ryan Taylor told CNN that the spike in Bitcoin’s price could be due to buyers returning to the Bitcoin market, having sold to pay income taxes on April 17. Some investors would have received tax rebates, and could well be reentering the market:
“The selling pressure associated with tax day has subsided right now. As people get their tax returns, there may be new money entering the market.”
Bitcoin deemed halal
Cointelegraph initially reported in February that Bitcoin was considered halal by Sharia law and this was confirmed in a document published by Indonesian-based tech startup Blossom Finance this week.
Muhammad Abu Bakar, a Mufti, or Muslim legal expert and haziz, wrote the report which widely classifies cryptocurrencies as halal.
Given that the report was published on Thursday 12 April, a number of people speculated that Muslim cryptocurrency traders have entered the market, which may have had an effect on the trading volume that led to the surge.
Decrease in selling pressure
All in all, the first quarter of 2018 has not been kind to Bitcoin and cryptocurrencies in general. A number of factors around the world compounded a humbling correction after lofty highs late last year.
In January, a wave of misleading reports out of South Korea created mass uncertainty in the Far East markets. With South Korea a hub for cryptocurrency trading due to its Kimchi premium, talk of a trading ban in the country caused a run on the markets. China’s staunch stance towards cryptocurrencies intensified as well which furthered negative sentiments.
Furthermore, a number of prominent financial leaders were scathing in their standpoints towards cryptocurrencies at the World Economic Forum in Davos in January. There were widespread calls for heavy regulation of cryptocurrencies from a number of prominent speakers. These claims though were counterpoised by America’s Securities Exchange Commission (SEC) and Commodities and Futures Trading Commission (CFTC) hearing early in February.
Both the SEC and CFTC delivered positive remarks towards cryptocurrencies, promising to produce regulations that foster development of the sector, while protecting investors from initial coin offering (ICO) scams. Markets reacted positively after the hearing.
Less than a month later, Bitcoin sunk lower, amid reports that trustees of defunct exchange Mt Gox had sold off over $400 mln to pay off debtors. Furthermore, let’s not forget about widespread bans of ICO advertising by major social media platforms Facebook and Twitter, as well as Google’s impending ban on cryptocurrency advertising in June.
All of this has led to Bitcoin being ‘oversold’, according to Tom Lee in an interview with CNBC on Friday, 13 April. Holding onto his $28,000 prediction for the end of the year, Lee said Bitcoin was is in similar position to the end of the bear market in 2014.
Add in unconfirmed reports by Fortune that world-renowned investor George Soros has given his Fund Management company the go ahead to start investing in cryptocurrencies, and it could well signal the end of a bearish period for Bitcoin and its alt coins.
Venture capitalist investor Tim Draper has also added fuel to the fire, predicting that Bitcoin could hit $250 000 in 2022 at a Blockchain event at the Draper University.
At the press time, Bitcoin and other altcoins continue to deliver a positive dynamics, with the biggest cryptocurrency standing at the $8,157 rate.