After having a mediocre year in
2018, Bitcoin has been rising this year. The currency has gained by more than
40% and this week, it passed the $6000 level. Year-to-date, the currency has
gained by more 54%.
There are a number of reasons why
the price has continued to rise. First, after falling sharply in 2018, many
arbitrage traders moved in to buy the currency as the year started. This is an
old strategy where investors buy assets that had lost the most in the previous
year when it was oversold.
Second, there are hopes that
regulators in the United States will allow Bitcoin ETFs to go into effect.
While the date of this is not yet known, the recent actions by the Securities
and Exchange Commission (SEC) have brought hopes that they will be allowed. If
they do proceed, it means that large investors like Blackrock and other asset
management firms will be able to participate in the industry.
Third, there have been interest
in the cryptocurrencies space from large organizations. This year, JP Morgan
announced that it was launching its own currency. The currency will be used by
the bank internally to facilitate the movement of cash around the world. It is
estimated that the bank handles trillions of dollars every year. Other
organizations that have expressed interest in the sector are Facebook,
Fidelity, and Blackrock.
However, there is a possibility
that the price might fall again. This is because of a number of reasons. First,
even when the ETFs are accepted, there is a likelihood that large investors
won’t buy. In fact, when CBOE launched the Bitcoin futures in 2017, the
expectation was that demand from institutional investors would rise. It did not
and the exchange was forced to delist the futures.
Second, there is no use case for
the currencies. This is because no major retailer or exchange accepts the
currency because of how insecure and volatile they are.
Third, the level of cybersecurity
issues in the industry poses a risk to investors. In fact, this morning,
Binance announced that hackers had stolen cryptocurrencies worth more than $40
million. The hackers used advanced hacking methods like phishing and viruses to
access the exchanfe’s hot wallet. A hot wallet is one that is available online
while a cold storage is one that is local in nature. The company’s cold storage
had 2% of the company’s Bitcoins. This comes after another $130 million worth
of crypto got lost after a CEO died with the password. In total, crypto worth
more than $1 billion was stolen last year.
On the one-year chart below, the
BTC/USD pair has been rising this year. This has taken the price above the
25-day and 50-day moving averages. This price eased slightly today after the
Binance announcement. The RSI has moved above the overbought level of 70. The
price may continue moving higher in the short term.
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