Why is bitcoin surging? — Here are 4 possible explanations

Posted by jbrumley on May 10, 2019 11:37 PM

By Aaron Hankin, MarketWatch

If you haven't heard, bitcoin is back. The digital currency on Thursday booked its eighth winning session in the past 10 and is on track to log four successive winning months - this after recording six losing months in a row, an unflattering record it had never previously achieved.

The bitcoin rally is nearing 100% off its December 2018 low at $3,200, and year-to-date the cryptocurrency has added 70%.

So what's behind the rally bitcoin? Here are four potential answers:

Technically driven

One thing the bitcoin rally has done is bust through some closely watched technical levels. Whether it's the resistance at $4,000, the psychological $5,000 mark or some key momentum indicators, the technical outlook has flipped from lower highs to higher lows.

"Bitcoin's long-term technical profiles continue to point to a new up cycle," wrote chart watcher Rob Sluymer of Fundstrat Global Advisors.

"With bitcoin now back to a resistance band near $6,000, similar to where it was in Q2 2015, a pullback would not be surprising. However, rather than sell or attempt to micromanage bitcoin exposure, we would strongly encourage investors to remain focused on the longer-term bottoming profile developing," he said.

Bitcoin, per Fundstrat Global Advisors

Moreover, bitcoin broke above closely observed 200-day moving average, and on April 23, the digital asset scored a golden cross, where the 50-day moving average crosses above the 200-day moving average - underlining its upside momentum.

The adoption argument

Arguably, bitcoin's biggest battle is getting people to use it. Whether as a store of value or a medium of exchange, digital assets have struggled to garner attention, especially from institutional investors.

But, according to a recent Fidelity survey, this is slowly changing. The Boston-based asset manager said nearly half of institutional investors believe digital assets can play a role in their portfolio, while 22% already own some form of digital currency.

"We've been seeing steady growth and adoption in the industry, and prices are starting to get in line with the usage of bitcoin," said Mati Greenspan, senior market analyst at eToro.

Is sentiment shifting?

Bitcoin, for the first time in a while, is shrugging off bad news. The industry, which is prone to negative headlines, including exchange heists and malfunctions, or the use of cryptos for illicit activity, has been back in the headlines.

"The fact the Binance news was shrugged off was telling. Add in the Bitfinex debacle and you can see that the sentiment really is rising," Greenspan added.

Binance, one of the largest cryptocurrency exchanges said on Tuesday that hackers stole more than $40 million worth of bitcoin. And on April 26, the New York Attorney General accused crypto exchange Bitfinex and Tether of an $850 million coverup.

But the digital currency barely flinched. After a momentary selloff, bitcoin resumed its march higher.

Are people actually dropping gold?

Or maybe people are trading in a popular haven asset for a slice of digital currency.

On May 1, Grayscale Investments, a subsidiary of Digital Currency Group, kicked off a provocative ad campaign to promote bitcoin as a better alternative to gold. The campaign, which employed the social-media hashtag #DropGold, promoted bitcoin as a better store of value, arguing it's more secure and borderless.

And, it turns out the gold bugs were watching. A day after the campaign launched, the World Gold Council rolled out another explanation as to why cryptocurrencies are no substitute to gold. "Cryptocurrencies extreme daily and intraday volatility disrupts its use as a medium of exchange and discourages strategic investments," wrote Adam Perlaky, manager of investment research at the World Gold Council.

But, maybe the ad got some investors reassessing their gold investments. On May 7, six days after the ad kicked off, the Grayscale Bitcoin Trust topped the list of the most actively traded stock on OTC Market Group.

As always, there's myriad theories behind each and every bitcoin move, but after a torrid 18 months for bitcoin bulls, it doesn't really matter why it's up. And on Friday it was up again, rising 2.6% to $6,290.

From MarketWatch