As Bitcoin Price Keeps Surging, We Examine Potential Catalysts

Siamak Masnavi

According to CryptoCompare, at 07:30 UTC on Sunday (May 12), the Bitcoin (BTC) price surged past $7,500 to reach $7,536 half an hour later, a level last seen on 2 August 2018. We take a closer look at Bitcoin's recent price action, and discuss several potential reasons that could (at least in part) explain it.

BTC - 12 Month CC Chart - 12 May 2019.png

And it is not just Bitcoin that is enjoying a tremendous bull run, as all of the major altcoins in the top 10 seem to have now joined the party.

Here are the 24-hour price charts for Ethereum (ETH), Bitcoin Cash (), Litecoin (LTC), and Cardano (ADA):

ETH - 24 Hour CC Chart - 12 May 2019.png

BCH - 24 Hour CC Chart - 12 May 2019.png

LTC - 24 Hour CC Chart - 12 May 2019.png

ADA - 24 Hour CC Chart - 12 May 2019.png

Before we examine some potential reasons for why the crypto markets are enjoying a very nice bull run at the moment, let's take a closer at what has been happening this weekend.

Here are a few tweets from prominent members of the crypto community that might give you a better idea of what the mood is like:

Vinny Lingham, CEO at Civic:

 Dovey Wan, Co-Founder of Primitive Ventures:

Arthur Hayes, Co-Founcer and CEO of BitMEX:

We can't be sure if we are firmly in the bull territory or if we are, how long this crypto price rally will continue, but we can speculate as to the reasons behind it. The most popular and pluasible explanations (in no particular order) seem to be as follows:

  • Improving technicals, such as last month's double break out of Bitcoin price upon the "Golden Cross";
  • Traders exiting their Tether (USDT) positions and getting into Bitcoin and the major altcoins, especially after the office of the New York Attorney General (NYAG) announced that it was investigating Bitfinex and Tether (and the resulting revelation that Tether was only 74% backed by cash and cash equivalents). 
  • Tether (USDT) managing to maintain its peg to the dollar despite all the drama surrounding Bifinex and Tether (unlike what happened in October 2018, when USDT fell to as low as $0.86).
  • The countdown to Bitcoin's next block reward halving event, which is estimated to take place on 23 May 2020.
  • Bloomberg reporting on May 6 that Fidelity Investments "will buy and sell the world’s most popular digital asset for institutional customers within a few weeks."
  • Reports that came out towards the end of last month about two of the biggest brokerages in the U.S., E*Trade Financial and TD Ameritrade, preparing to launch Bitcoin trading on their platforms.
  • The Wall Street Journal's article (published on May 2) about Facebook's crypto-based payments system.
  • Diar Research reporting on May 6 that for Bitcoin the number of transactions on-chain is "just shy of the all-time-high of December 2017."
  • The realization by many that "we must be in a bull market" after the attack on Binance on May 7 since it seemingly had no negative impact on the price of Bitcoin.
  • U.S. Congressman Bradley Sherman (D-CA) asking his colleagues to introduce "a bill to outlaw cryptocurrency purchases by Americans" being taken as a bullish sign by many fans of crypto, such as Anthony Pompliano (aka "Pomp), who said on May 10 that Congressman Sherman's remarks only served as an ad for crypto and helped to confirm its validity.
  • New York City Blockchain Week.
  • The Fear of Missing Out (FOMO).

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CME Looks to Double Bitcoin Futures Limit, but Is This Wise?

The Chicago Mercantile Exchange (CME) has a new request for its regulator, as it looks to double open position limits on bitcoin futures contracts in the face of significant interest.

Nasdaq reports that the CME has already petitioned its regulatory body, the Commodity Futures Trading Commission (CTFC), asking for an increase from 1000 contracts per spot month to 2000 per investor. Each contract represents five BTC, so essentially, at its peak,  a single investor's total position may edge towards a monumental 10,000 BTC.

This is in direct response to the contract's recent growth which is currently depicting record levels of activity, citing $370 million being traded per day. A spokesperson for the CME noted that the idea to increase limits was proposed on the continued maturity of the market:

Based on the significant growth and acceptance of our financially-settled CME Bitcoin futures markets, as well as our analysis of the underlying bitcoin market.

However, as Nasdaq writes the increase in the upper limit of positions is somewhat superfluous. As of July, the number of open interest contracts reached an all-time high of just 6100; given this, it seems the CME may be future-proofing.

Open to Manipulation?

However, concerns remain about the limit increase, as without them, the potential for manipulation rises; often to the detriment to the underlying asset. Although, as per the CTFC website, the threat of manipulation from bitcoin futures contracts is "low":

In general, position limits are not needed for markets where the threat of market manipulation is non-existent or very low.

Instead, Nasdaq posited that this might point to a lessening on the CTFC's strict rule of bitcoin; as well as a maturing of the market in general.

Nevertheless, some believe the CME's bitcoin futures contracts do pose a significant threat to the price of BTC; with some suggesting that blatant manipulation continues unchecked within the market.

As reported, there seems to be a correlation between the expiry dates of CME bitcoin futures contracts and a lull in the price point of BTC. In several instances, a significant drop in bitcoin's price has coincided with a closure from the CME. The most recent example of this occurred on Labor Day, September 2, when bitcoin rose an extraordinary 8% shortly after the CME shut.

Crypto analyst, Alex Kruger, highlighted this, noting the large gaps which formed on the CME chart, from the price discrepancy before and after closing.

This has become a pretty accepted practice within the market. Kruger has even gone to the lengths of compiling statistics each time this phenomenon transpired:

On these occasions, bitcoin cited an average 4.6% price discrepancy following the close of the CME.

Whether this is a coincidence or the market is indeed being actively manipulated is as yet unclear. Either way, with the increase of these limits it might be only a matter of time until we know for sure.

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