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article imageOp-Ed: Bitcoin trending up still breaking $9,000 and then some

By Ken Hanly     Jun 17, 2019 in Technology
The recent price surge in bitcoin (BTC) along with the entire cryptocurrency market accelerated over the weekend. Bitcoin has risen over the $9,000 level for the first time since May 10 of 2018. This is almost triple bitcoin's price as the year began.
Bitcoin best performing asset class this year so far
A Sunday article in Zero Hedge by Tyler Durden notes that with a market cap now of $163 billion bitcoin has emerged as the best major performing asset this year up to now. The increased price has been accompanied by increased volatility from all-time lows at the beginning of April to 95 over the last thirty days. Now volumes have also picked up dampening earlier fears that the rise was doomed because of low volumes. Investors appear to be piling in perhaps to make a quick profit.
However, this time may be different as Nicolaos Panigrtzloo of JP Morgan notes: ".. there has been a sharp increase in reported trading volumes of Bitcoin and other cryptocurrencies over the past few months, with Bitcoin trading volumes on crypto exchanges increasing to $445bn in April from a 1Q19 average of $220bn per month, and in May volumes increased further to around $725bn. This compares to previous peak volumes in Dec17 and Jan18 of $420bn. Curiously, for the three largest three cryptocurrencies by market capitalization, Bitcoin, Ethereum and Ripple, the combined volumes for May stand at above $1tr compared to a previous peak in Jan18 of around $685bn, suggesting that all else equal, there is an even greater interest in the crypto space . "
However, this development is taking place when the market value of bitcoins is still around half it was on its December 17 high of last ear. The combined market value of all cryptocoins is just a third of its previous high. The increase in volumes in crypto-trading in dollar terms reflects an increase in the market value of bitcoin and altcoins. The bitcoin volumes are significantly above previous volume highs.
Trading volumes are questionable
If trading volume is taken at face value the surge in volume suggests a large increase in activity in the cryptocurrency market. However many have raised concerns over the authenticity of reported volumes on exchanges. Bitwise, a cryptocurrency asset manager, has published work that claims that bitcoin trading volumes listed on many exchanges are significantly overstated due to "fake trading". That is the exchanges report trades that never took place Wash trading also creates an artificial volume increase in trades. Wikipedia describes wash trading: "A wash trade is a form of market manipulation in which an investor simultaneously sells and buys the same financial instruments to create misleading, artificial activity in the marketplace.[1] First, an investor will place a sell order, then place a buy order to buy from himself, or vice versa. This may be done for a number of reasons: To artificially increase trading volume, giving the impression that the instrument is more in demand than it actually is."
Bitwise said that on many exchanges actual volume was jut around 5 percent of the total reported. The Blockchain Transparency institute which publishes monthly surveillance report estimated in April of 2019 that less than one percent of reported volume was real volume on some exchanges.
If the 5 percent estimate is taken a sound, than the actual volume of trading of bitcoin on all exchanges was around $36 billion rather than the listed $725 billion. Beyond indicating that the actual cryptocoin market is lower than reported this over-reporting shows that the significance of the futures market is underestimated. The Bitwise report claims that the futures market allowed short exposures that allowed arbitrageurs to carry out arbitrage properly. Arbitrage is described by Wikipedia as follows: "In economics and finance, arbitrage.. is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices...People who engage in arbitrage are called arbitrageurs—such as a bank or brokerage firm. The term is mainly applied to trading in financial instruments, such as bonds, stocks, derivatives, commodities and currencies. Arbitrage has the effect of causing prices of the same or very similar assets in different markets to converge. "
JP Morgan estimates around $12 billion of bitcoin futures trading in May represented a significant increase on the April 5 volume of $5.5 billion and a 2019 average of just $1.8 billion. This suggests that some rise in trading volumes happened in spit of the vast overstatement of volumes by cryptocurrency exchanges.
The Zero Hedge article concludes: "The conclusion to this overstatement of trading volumes by cryptocurrency exchanges, and by implication the understatement of the importance of listed futures, suggests that in the two years since bitcoin's last major spike in 2017 the "market structure has likely changed considerably... with a greater influence from institutional investors.""
This greater influence of institutional investors represents a big difference with the December 2017 high which was driven by retail investors jumping on the bandwagon and those fearing to miss out on the huge rise in the price of bitcoin. With more institutional investors entering the market volatility should decrease and market movements could be more stable.
With the price rise there may also be a return of more retail buying especially from those in Asia and there could be a bitcoin bubble starting again. Zero Hedge thinks that the new peak could be $60,000 to $100,000. That seems a bit high. One might think that institutional investors may take their profits and leave before that resulting in another period of very volatile but declining periods before things settle down.
Present situation
24 hours ago bitcoin (BTC) was trading at $8,997 according to CoinDesk data. Since then the high has been far above $9,000 at $9,469. The low has been just $8,969 so most of the day has seen an upward trend. At 18:45 Central Daylight Time BTC was trading at $9,350 a gain of $353 since the open and well above $9,000 still. The majority of the top 20 altcoins are also up today. The present price of BTC and twenty major altcoins can be found here. Bitcoin still needs to break through $10,000 before it starts any strong upward trend as some are predicting.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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