Bitcoin Surge Explained: Why this Currency has such High Value?

Bitcoin has become a cause célèbre in this year because of its rapid surges and occasional downfalls throughout the year. Despite the availability of nearly eighteen thousand cryptocurrencies, bitcoin is still one of the most sought-after and tradable virtual currencies available in crypto exchanges worldwide.

The price range of this cryptocurrency that started at $1,000 in the beginning of this year, reached near $20,000 on December 7th. Before reaching this extraordinary figure, on 29th November, bitcoin’s price surpassed the $10,000 mark for the first time. As of this moment, bitcoin’s price is revolving around a relatively stable $15,000 mark.

From the above statistical figures, it is quite evident that despite the volatility factor, the overall price trend of this virtual currency is steadily upward. According to many economists and crypto-connoisseurs, this upward trend is very likely to continue in the coming year of 2018 as well and consequently, several neophytes, as well as experienced traders, are investing in bitcoin hoping for a lucrative return.

Pictorial Representation of Bitcoin
Figure 1: Pictorial Representation of Bitcoin

Although it is very difficult to pinpoint the exact reasons for this upsurge; economists and marketers have determined some factors that are likely to have pivotal impacts on this phenomenon. Here, some of these factors are discussed:

  1. The introduction of ICO: ICO (also known as Initial Coin Offerings) has made a significant impact on the cryptocurrency market this year. The concept of ICO refers to the practice of raising money by selling cryptocurrencies instead of traditional stocks or shares. Because of the advantages provided by cryptocurrencies like Bitcoin (such as decentralized approach and lower transaction fees), many traders and start-ups are gradually inclining towards ICOs for raising money. As per the opinion of various crypto-experts, this can be a valid reason for this rapid upsurge of bitcoin. Also, a major percentage of experienced cryptocurrency traders, who are also happened to be interested in ICO’s, convert their fiat currency to bitcoin before buying new ICO tokens. Consequently, this practice has made bitcoin the ‘reserve currency’ for crypto-traders across the globe and major contributor in its rapid escalation.
  2. Initial Coin Offerings
    Figure 2: Initial Coin Offerings
  3. Trading on Bitcoin Futures: On 10th December, the majorly discussed derivative of bitcoin, Bitcoin Futures was launched on two of the most reputed cryptocurrency exchanges in the world named Chicago Board Options Exchange (CBOE), and Chicago Mercantile Exchange (CME). Since its launch, millions of traders have been investing in this derivative as it offers profitable prospects for them and as a result, 8,800 bitcoins were traded within the first week of the official launch of Bitcoin Futures. According to Charles Hayter, the founder of Cryptocompare, Bitcoin Futures is the ratification of the underlying technology of bitcoin and all other cryptocurrencies in general. Therefore, the price of bitcoin is likely to go even more upwards in the coming year with the increase in popularity of this bitcoin derivative.
  4. Bitcoin Futures Chart
    Figure 3: Bitcoin Futures Chart
  5. Bitcoin shorting: Bitcoin shorting refers to the technique of trading bitcoins against its long-term uptrend. There are a significant number of investors who rely on this technique in order to maximise their profit by selling their bitcoin holdings. The volatility of bitcoin’s market price and the lucrative initiation of Bitcoin Futures are the principal reasons behind choosing this short-term trading process amongst various traders and in consequence, this cryptocurrency is experiencing a major surge in its price. Also, there is a tendency of pre-hedging among several investors because, in case of bitcoin, it is extremely difficult to hedge quickly enough so that the price exposure can be covered. The practice of pre-hedging also accounts for this increase in price as well as volatility.
  6. Diversification in several exchanges: Initially bitcoin was traded on only Coinbase exchange. But as time progressed, the market capitalisation along with the number of investors increased significantly. As a result of this inordinate escalation, the number of Coinbase accounts has increased from 5.5 million to 13.3 within a time period of eleven months. As of now, this reputed cryptocurrency exchange is getting 100,000 new customers per day according to several statistical data. With this rapid increase in demand, Coinbase is now struggling to keep up with the demand and therefore, several other exchanges such as Bittrex, Bitfinex, Coinone, Korbit, etc are also listing this cryptocurrency in their exchange platform to satisfy their demand. This diversification is also a principal reason behind this upsurge.
  7. Bitcoin Price on 26th December
    Figure 4: Bitcoin Price on 26th December
  8. Introduction of ETFs: Major cryptocurrency exchanges like New York Stock Exchange (NYSE), Goldman Sachs etc have filed ETF (Electronic Traded-Funds) applications to the US Securities and Exchange Commission (SEC). The principal purpose of an ETF application is to make cryptocurrency trading more accessible to the investors by providing them seamless trading channels individually and with the largest exchange in the world (NYSE) backing this initiative, ETFs are likely to make a positive impact on the price of bitcoin. Besides these two, CBOE (Chicago Board Options Exchange) have introduced six separate ETFs namely
    • Rex Bitcoin Strategy ETF
    • Rex Short Bitcoin Strategy ETF
    • GraniteShares Bitcoin ETF
    • GraniteShares Bitcoin ETF
    • First Trust Bitcoin Strategy ETF
    • First Trust Inverse Bitcoin Strategy ETF
  9. Bitcoin's Price Surge
    Figure 5: Bitcoin’s Price Surge
  10. Speculation of Crypto-experts: Speculations play a major part in determining the current price of any virtual currency and depending upon the major political and financial events, the speculations of the crypto-connoisseurs have also been predominantly on the positive side. As a result, the number of traders investing in this cryptocurrency hasn’t decreased despite warnings from personalities like economist Joseph Stiglitz, Howard Davies (Chairman of Royal Bank of Scotland), etc. Hence, speculation made by major investors combined with other extrinsic factors can also contribute to the price surge of bitcoin.
  11. Bitcoin Density in Several Continents
    Figure 6: Bitcoin Density in Several Continents

Despite the fact that nothing can be predicted beforehand in the world of cryptocurrencies, if the factors mentioned above continue to make an impact on this virtual currency, the price of bitcoin is more likely to reach even higher ranges. According to the financial analyst of RT, Max Keiser predicted that the price of bitcoin is likely to touch or even surpass $28,000 mark once the ETFs are on song. Therefore, whether Bitcoin is a bubble or not, the immense popularity of this currency is likely to increase even more in the coming year.


Sources

  1. https://www.investopedia.com/news/8800-bitcoin-tokens-traded-first-week-bitcoin-futures-tradestation/?utm_campaign=rss_headlines&utm_source=rss_www&utm_medium=referral
  2. http://www.newsbtc.com/2017/12/25/bitcoin-price-expected-surge-rapidly-2018-potential-factors-consider/
  3. https://www.ccn.com/bitcoin-price-recovers-within-24-hours-11500-15000-optimstic-factors/
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