On October 19, 1781, British General Charles Cornwallis surrendered almost 8,000 soldiers, officers, and seamen to American and French commanders on the battlefield of Yorktown, Virginia. This effectively ended the American Revolutionary War. Such an event was nearly impossible for anyone to imagine in the previous years when the world’s greatest army of the day routinely routed the untrained and vastly outnumbered American militia. It would be nearly as impossible to ascribe the eventual American victory to any one factor. The major contributing factors included:
- American resilience. General Washington and other leaders kept troops going when they were underequipped, underfed and beaten back time and again. And when major cities were lost (even the capital), the Americans fought on, much unlike traditional European battles. Key victories in Saratoga, Trenton and Princeton in the north and later at Kings Mountain and Cowpens in the south were military turning points but they were also vital in boosting the militias’ morale and bringing in more volunteers to fight.
- Vastness of territory to control. While the British controlled Philadelphia (the capital) and New York (biggest city), they never managed to gain control of much of the country. In so doing, they allowed the American militias to retreat and reform time and again.
- Allies at the right time. France’s support of the colonists is well known and was crucial to the victory, both financially and militarily. Lesser but still significant contributions were made by Spain and the Netherlands who both declared war on Britain.
- Others factors… Historians point to additional contributing factors – guerilla tactics, British military overconfidence, the colonists’ “home field advantage” for logistics — the list goes on.
Without all of these conditions coming together, it’s likely that the underdog colonists would have experienced a very different outcome than the Cornwallis surrender in 1781.
Causation from multiple sources happens across the spectrum. Quite often, no one cause explains an action. Today, I believe that’s exactly what we’re seeing in the cryptoasset world. Bitcoin’s price popped for a second time in the last six weeks and I’ve come up with nine reasons why. Some reasons are more important than others but I believe all had a role.
Van touched on a few of these in his routinely excellent cryptoasset update last week but I wanted to dig in a bit more because I believe a few of these reasons are causes for more than a short term pop — they will have long-lasting effects.
Without further ado, here’s my list of why we got the most recent bitcoin pop – from most important to least important:
1. Institutional Follow Through: After the first big pop in crypto prices in April, I wrote about several factors behind that move up in price to above $5,000 per coin. One of the key factors was a carefully scripted and very large institutional purchase of bitcoin across three exchanges. Recently, more institutional news has fueled the Bitcoin fire:
- Grayscale Bitcoin Trust (Symbol: GBTC) announced their assets under management (exclusively in bitcoin) hit $1.4 billion — a 10 month high. The fund said that two-thirds of this total has come from institutional investors. Van talked about the premium (price of the stock over the value of bitcoin held) that GBTC commands in the market last week in his crypto analysis. I agree that this is a positive for investors and traders rather than a negative.
- CME futures volume hit an all-time high of 33,677 contracts on Monday of last week. Each contract is for five coins so multiplying the number of contracts by 5 yields an effective trading volume that day of 168,385 Bitcoins. Given an average price, that means $1.297 billion dollars of CME futures in Bitcoin traded in a day.
- Fidelity announced last week that they would launch crypto trading for institutional clients — that’s a big step for a fairly conservative organization.
2. China Trade Fallout: China’s currency, the Yuan, hit a 6-month low recently. Multiple sources have reported that wealthy Chinese investors seeking non-Yuan denominated investments as one fallout of the U.S./China trade war. While Bitcoin trade was banned officially in China, people can find a thriving gray market over-the-counter (OTC) market. Crypto buyers pay a 4 to 5% premium for transactions through these third parties.
3. China Trade Fallout #2: As global stock markets have dropped over the past two weeks plus, there’s been something of a sideways take on “flight to quality” right now — risk-on assets are fleeing to cryptoassets. Of those, the vast majority have been going into Bitcoin (see #6 below). I told Stuart Varney on Fox Business Network show Varney & Co. on Tuesday that Bitcoin had already been on a nice five to six-week uptrend when tariff troubles resurfaced. For traders looking for alternative assets as they were exiting equities, the Bitcoin uptrend presented a ready-made momentum play. They just jumped on an asset that was already moving…
4. Headlines Have Helped — a Lot: The recent Bitcoin price surge happened right alongside Coindesk’s Consensus 2019 conference in New York City where 5,000 people flooded a Hilton in Midtown Manhattan in one the year’s biggest cryptoasset conferences. Undoubtedly the biggest announcement there was the Bakkt futures contract collaboration with the ICE Futures exchange. A top trader that I know said, “This contract will be the death-nail in dozens and dozens of dishonest and illiquid (crypto) exchanges across the world as the industry drives toward standardized price discovery with custodian protection and a trade settlement process.”
5. Broader Retail Acceptance: An alliance between Gemini and a new payment start-up called Flexa, is broadening cryptocurrency acceptance. Gemini is owned by the Facebook co-founding Winklevoss twins. Nordstrom, Starbucks, and Amazon-owned Whole Foods are reportedly on board. This is a big step forward for cryptocurrencies.
6. The Altcoin Exodus: Bitcoin is becoming the preeminent cryptocurrency and competitive coins are seeing outflows to the “big dog”. In an interview with BusinessInsider.com, Sid Shekhar, co-founder of Token Analyst said, ” . . . purely looking at the data — one factor that could be behind at least the BTC rally is the conversion of ‘alt’ coins into Bitcoin”. Last week, Van also highlighted the flight to Bitcoin as he showed the increase of Bitcoin’s growing percentage of the total cryptoasset market cap.
7. Binance Theft: In a strange but interesting way, the $40 million in Bitcoin stolen from Binance was actually a positive. Binance is a major crypto exchange open in numerous countries and actually, the theft itself was not positive but what happened afterwards was. Initially, Binance’s CEO proposed rolling back the Bitcoin blockchain (the ledger that tracks Bitcoin transactions) to reverse the illicit transactions and recover the funds. The backlash to his suggestion was swift and ferocious. The global community of users, developers and miners are protecting the integrity of the blockchain ledger and showed the depth of the “censorship-resistant” nature of the decentralized currency.
8. Another Exchange Problem — Bitfinex/Tether: The New York state attorney general has filed a lawsuit against this exchange alleging “ongoing fraud”. This helped add to #6 — the flight to Bitcoin.
9. Technicals — Lastly, the price chart indicated an upward vacuum for price from its previous level. Many watchers cited Bitcoin’s cross above the 200 day moving average in April as a key driver for the first price pop. When we look at the chart now, we see that the most recent move went from one key level to another — there was no resistance in between:
- We went from the 2019 lows . . .
- to explode in early April — I documented the reasons for that push in an article then.
- The current drive up has been through a “resistance-free” zone.
- This one price blip at the end of September is just a single point to which technicians generally ascribe little importance.
- Price is currently stalling at the next key resistance level ~$8,250.
- If we go above that, we have no real resistance until ~$9,400.
(Reader Request — Please let me know your thoughts on what points I may have missed! I’d love to make a nice round “10 Reasons Bitcoin Popped.” Email me at drbarton “at” vantharp.com.)
Where Next for Bitcoin?
We have had a quick pullback to below $7,000 — which I believe is temporary. After the latest strong, fast rip higher, the pullback has been profit-taking — which is mostly expected. With all the positive occurrences on the institutional and broader acceptance fronts, however, I’d be amazed if Bitcoin prices don’t go up to challenge the $9,400 zone in the coming months.
Great trading and God bless you,