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Alex Kimani

Alex Kimani

Writer, Divergente Research LLC

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Divergente Research LLC and Safehaven.com. 

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Are The Bitcoin Bulls Back?

BTC

After sitting on the sidelines for nearly a month, bitcoin bulls are finally back--with some serious horns as the price of the original crypto jumped more than $1,000 in one hour on Thursday's trade to move above $8,000 for the first time in April.

The leading digital currency was trading at $6,863 at 6:40 a.m. EDT Thursday before clearing two significant psychological barriers and finishing off at $8,010 by 7:40 a.m. EDT Thursday.

 After giving up some gains due to rampant profit taking, Bitcoin managed to power up and sits at $8,159 at the time of writing on 9:00 a.m. EDT Friday, for an impressive 24-hour gain of around 20 percent.

Meanwhile, Bitcoin Cash, Ethereum, Litecoin and Ripple all benefitted from a sympathy rally and finished with double-digit gains.

(Click to enlarge)

Source: Investing.com

The Bulls Back in Charge

Nobody seems quite sure what happened here. The sudden buying momentum happened quite unexpectedly considering that prices had simply been moving sideways for more than two weeks.

Unlike the equities markets where big buys and sales are usually well documented, the bitcoin market is rather opaque.

There's a good chance that Thursday's rally was the result of massive buying by either large institutions or the bitcoin whales. Buy orders accounted for nearly 60 percent of all orders placed during the 24-hour period according to data from Bitfinex. It's likely that as the price shot up, the shorts started getting burned, forcing them to close their positions thus lighting a fire under the rally. Related: Investors Are Getting Rich Off Venezuelan ‘Hunger Bonds’

The short squeeze signifies a significant change in market sentiment. More importantly, the surge signifies a sharp decrease in selling pressure as various bitcoin headwinds including tax considerations and heavy selling by Mt. Gox trustee fade away.

The Whales Take Over Crypto Markets

There's a solid chance that the rally was the result of heavy buying activity by Bitcoin whales. Lack of clear regulation in crypto markets exposes traders and investors to the risk of uncontrolled insider trading. The SEC has set strict insider trading guidelines for traditional financial markets with stiff penalties including repatriation of profits and jail time for breaches.

The same can hardly be said for crypto trading. Cryptocurrency exchanges are not required to collect any identity information, and do not report to any government agencies. Now that's bad news in a market like Bitcoin's where 40 percent of all coins are owned by  the top 1,000 people aka the Bitcoin whales. Sudden buying or selling activity by the whales can change the entire course of the market in a flash.

We cannot also discount the possibility of price manipulation by Bitcoin futures traders. CME Group and CBOE have introduced Bitcoin futures which traders can use to speculate on future prices.

Bitcoin future markets are dominated by institutional investors and high net worth individuals.

A few days ago, there was a report by CME that Bitcoin futures were “enjoying tremendous interest” from Asian investors with trade volumes increasing 50 percent since their December launch. Some analysts believe that Bitcoin's future market price follows the futures market and not the other way around.

Can the Bulls Hold Out?

This is of course, the million-dollar question. Remember, it can go either way. If the latest rally was driven by whales or the futures market, it can easily reverse course if the traders decide to suddenly take profits and trigger a massive selloff.

The 24-hour chart has been flashing more bearish reversal signals than bullish ones. But that probably won't matter at all if the whales still have something up their sleeves.

By Alex Kimani for Safehaven.com

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