Bitcoin is notoriously volatile. Since its inception in 2009, the cryptocurrency has seen mind-boggling price spikes and vertical free falls that often defy explanation – some analysts relying on a 2013 meme describing it as “magical internet money.” .
But even with this story bristling, the sudden spike in bitcoin prices on April 12 was unprecedented. In less than 60 minutes, the value of bitcoin soared by over $ 1,000, driven by the largest hour-long trading volume in history with over $ 1 billion worth of bitcoin.
The skyrocketing price, which pushed bitcoin above $ 8,000 for the first time since March, was even more surprising given that the value of the digital currency had steadily declined since it peaked at nearly $ 20,000 at the end of 2017.
Large market movements can sometimes be attributed to positive or negative news in the cryptocurrency space, but experts have been hesitant to attribute the most recent gains to anything specific.
“Bitcoin has exhibited significant volatility over the past two years,” said bitcoin expert David Shrier. The independent. “It is important to remember that this is a highly speculative asset and that a handful of players have the capacity to have a significant impact on the price.”
Mr Shrier, co-organizer of the Oxford Fintech course Said Business School, leader in education technology Get Smarter, points to the power that only a handful of traders have in the market. The huge holdings held by these traders have a disproportionate impact on the market.
It’s a view shared by Olga Feldmeier, CEO of blockchain startup Smart Valor, which suggests that the rapid increase could be the result of a single player.
“I personally think that this increase was due to a large institutional investor,” Ms. Feldmeier said. The independent. “Apart from [renowned currency trader] George Soros, there are a lot of institutions, hedge funds and big investors waiting for the right time to step in.
“As the price increase occurred when crossing the $ 7,000 line, and initially came from a single exchange – Bitfinex – this indicated that it was being pulled by a large institutional PO. , it has spread to other exchanges and markets.
Another factor to take into consideration in understanding bitcoin price movements is what is known as “hodlers”. This investor term – unique to cryptocurrency – refers to people who would rather hold their bitcoin rather than sell it.
This means that no matter how much the cryptocurrency’s price drops, there will likely never be a massive sell-off from all investors.
“Bitcoin was born out of the 2008 financial crisis, and a lot of people who got into it and got big positions early on are wary of the mainstream financial system,” Mr. Shrier said.
“Bitcoin probably benefits from the perception of being an uncorrelated asset, which means that as other securities like the US dollar or the stock market may fluctuate in concert with recent events, we may see ‘thefts to the ‘periodic decorrelation’ – which will become more exacerbated as more institutional capital begins to trade in bitcoin.
All of this unpredictability means it’s hard to predict whether these dramatic gains signify a resumption of recent bitcoin woe. While some will be cautious about investing in something inherently volatile, others believe that the highs of 2017 will look small relative to the future price of bitcoin.
Cryptocurrency proponents say it is the underlying technology that will eventually see bitcoin’s true potential come true. Rather than simply being a store of value or a speculative asset, bitcoin could one day be used as a legitimate currency alongside the US dollar or the euro.
Twitter CEO Jack Dorsey, who is also an investor in a bitcoin startup, recently claimed that cryptocurrency will one day become the ‘single currency’ in the world over the next decade.
If that were to happen – which some say is technically impossible due to bitcoin’s slow and inefficient transaction times – then a single bitcoin could trade for millions of dollars.
It is a hypothesis of Michael Jackson, partner of a leading venture capital firm Mangrove Capital Partners and the former COO of Skype. Like Mr. Dorsey, Mr. Jackson views the inherent value of bitcoin as both an investment security and a payment mechanism.
If bitcoin were to reach even a fraction of the value of other large money masses like the US dollar, Jackson believes bitcoin could be worth “100 times what it is today.” It will just take him a few more days like today.