Photo: Physical versions of Bitcoins in software engineer Mike Caldwell's shop in Sandy, Utah, April 3, 2013. (AP Photo/Rick Bowmer)
The price of Bitcoin rallied 25 percent in the last two weeks to around $48,000 and most analysts expect it to go much higher with some debating a bull run to $80,000.
Some anticipate the price breaking $50,000 and continuing towards $53,350.61 going into the weekend.
Here are five 5 things to know about why the price is going up.
Bitcoin’s price rally is credited in part to continued Bitcoin purchases by Singapore-based Luna Foundation Guard, a nonprofit focused on the Terra blockchain. Luna has purchased more than $1 billion in Bitcoin since the end of January to build a reserve for its stablecoin, TerraUSD (UST), Terraform Labs co-founder and CEO Do Kwon told Bloomberg.
Luna bought about $135 million in Bitcoin on Monday alone.
“UST is going to be the first internet native currency that implements the Bitcoin standard as part of its monetary policy,” Kwon told Bloomberg in an earlier report.
Earlier in March, Kwon said the UST stablecoin would be backed by a reserve of Bitcoin that could eventually reach $10 billion. He tweeted on March 22 that he has $3 billion in funds ready to make purchases to back the TerraUSD.
“We have also seen some significant signs of growing institutional support – just over the past 10 days, we’ve had statements from Goldman Sachs, BlackRock, Cowen, Bridgewater and Virtu, all signaling growing conviction that the crypto markets are worth dedicating more resources to,” said Noelle Acheson, head of market insights at CoinDesk-affiliated Genesis Global Trading.
When the price of Bitcoin exceeded $47,000 on Monday, it confirmed a breakout from a two-month triangular pattern, FX analyst Omkar Godbole reported. Triangles represent a steady narrowing of the trading range and they form when bulls and bears are unwilling to lead the price action, Godbole wrote. “So, traders and chart analysts consider an eventual escape from the triangle in either direction a hint of a beginning of a new bull or bear run.”
“The triangle breakout has opened up upside toward resistance at $53,000,” said Daniel Kukan, senior crypto trader at Swizerland-based Crypto Finance AG, in a Telegram chat.
Macro strategists often criticize technical analysis as unreliable, Godbole wrote. Chart patterns and indicators often fail but many people believe in the charts, so “breakouts or breakdowns often become a self-fulfilling prophecy.”
The bullish technical outlook will be invalidated if falls below support at $43,000, Crypto Finance AG’s Kukan noted.
Despite forecasts of recession due to rising oil prices and the Russian invasion of Ukraine, traditional stock markets rose 6 percent to 8 percent in the past few weeks. That’s a sign that Bitcoin has a stronger correlation with traditional stock markets than with gold, Marca reported.
Bitcoin’s massive recovery followed in the footsteps of the U.S. stocks, hitting a three-month high and holding above significant resistance at $45,800. Bitcoin faces a hurdle at the 200-day moving average ($48,295).
Investors want to know how long the rally can continue, considering warnings of recession from the bond market, the Russia-Ukraine geopolitical uncertainty and a hawkish Federal Reserve. The S&P 500 was up 11 percent in the two weeks following March 8, its biggest 15-day percentage gain since June 2020, Reuters reported. Many of the high-growth stocks that were slammed for most of 2022 so far led the surge. The benchmark index cut its year-to-date losses to 2.8 percent.
The S&P 500 closed up 1.2 percent on Tuesday even though the U.S. 2-year/10-year Treasury yield curve inverted for the first time since September 2019 — an indicator that has reliably predicted recessions in the past.
“It’s been mystifying,” said Jack Ablin, chief investment officer at Cresset Capital Management.
Federal Reserve Chairman Jerome Powell has said that the U.S. economy is strong enough to handle an aggressive rate increase policy. Its willingness to tackle high inflation may be helping.
The economy is strong enough to avoid a recession, Powell said earlier in March in a speech to the National Association for Business Economics. “We will take the necessary steps to ensure a return to price stability. In particular, if we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so.”
The S&P 500 has gained more than 6 percent since the Fed’s March 16 monetary policy meeting, when it raised interest rates by 25 basis points and suggested it’s willing to raise rates 150 basis points in 2022.
“I believe that these policy actions and those to come will help bring inflation down near 2 percent over the next 3 years,” Powell said. The Fed has raised rates significantly three times without setting off a recession, Powell said — in 1965, 1984, and 1994.
“While stock investors love low interest rates, they don’t love an inflationary environment that gets out of control,” said J. Bryant Evans, investment advisor and portfolio manager at Cozad Asset Management.
Joe Burnett, a mining analyst at Blockware Solutions, said Bitcoin is the only asset in the world that has no dilution risk.
“There can only be 21,000,000 BTC. Governments and central banks can create more dollars, yen and euros. Gold miners can find more gold. Bitcoin’s unique monetary properties make it more like a new savings technology, rather than a traditional investment,” Burnett told Capital.com.
Listen to GHOGH with Jamarlin Martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles, and Biden. He talks about the risk factors for Bitcoin as an investment asset including origin risk, speculative market structure, regulatory, and environment. Are broader financial markets in a massive speculative bubble?
Bitcoin can be treated as a highly volatile long-term savings account, but not an investment because it offers no potential future cash flows.
“It simply is another form of cash or money. In comparison to other tools that have historically been used as money, bitcoin is the most scarce,” Burnett said.
Photo: This April 3, 2013 photo shows bitcoin tokens at 35-year-old software engineer Mike Caldwell’s shop in Sandy, Utah. Caldwell mints physical versions of bitcoins, cranking out homemade tokens with codes protected by tamper-proof holographic seals, a retro-futuristic kind of prepaid cash. (AP Photo/Rick Bowmer)
