After weeks of struggling and rapidly losing value, bitcoin exploded in the past few days and neared $56,000 – its highest price line since mid-May. Yesterday alone, the cryptocurrency gained more than $5,000 of value in hours.
While the bulls celebrate, it’s worth exploring potential reasons why that might be and could there be more similar developments hiding behind the corner.
Reason 1: Whale Purchases
Being an asset with a maximum supply of just 21,000,000 tokens with a large percentage of the existing ones lost or in the hands of long-term holders, the price of BTC could fluctuate hard whenever the so-called whales make substantial purchases (or sales).
Data presented by CryptoQuant’s CEO – Ki-Young Ju – provides a similar example. The purchase came roughly 24 hours ago – or just ahead of the $5,000 move. In it, someone (or multiple parties) accumulated $1.6 billion worth of bitcoin via market orders in just five minutes, Ju explained.
He added that the short liquidations at that point were still relatively small – around $17 million – which makes it more likely that this was a whale purchase instead of “cascade liquidations.”
Reason 2: On-Chain Metrics
Arguably the most crucial part of the health of the Bitcoin network is the hash rate, which is determined by the number of miners putting their computational devices to work on the blockchain.
Interestingly, it has been previously linked to BTC’s price. Even the popular BTC maximalist Max Keiser previously asserted that when one goes up, the other tends to follow (and vice-versa).
The hash rate had reached an all-time high of nearly 200 Ehash/s in May this year – shortly after the USD price of BTC had charted its own record of $65,000. Following the FUD from Elon Musk and China, both went down hard.
Bitcoin’s price bottomed below $30,000 (a roughly 60% decline), while the hash rate went down to 70 Ehash/s – a similar drop.
Now, though, both have been on the rebound. Aside from the aforementioned price developments, the hash rate is currently at above 130 Ehash/s, according to Bitinfocharts data. Once again, its recovery is similar.
Aside from this, as we’ve covered extensively in our bitcoin price analysis, other on-chain metrics are also suggesting that the bullish sentiment is justified. Most of the recent sell-offs were induced by weak hands selling, while long-term holders and miners continue accumulating.
Reason 3: The US
We’ve seen in the past what a reiteration of an already existing ban can do to the market. The world’s most populated country has acted against the cryptocurrency industry for years, but every time it repeats the same ban (or comes with a slightly different one), prices slump immediately.
As such, it would be logical to assume that the opposite could have a beneficial effect on the market. The world’s largest economy by nominal GDP – the United States – has no intentions to incorporate a ban on the industry. This was first asserted by Fed Chair Jerome Powell before the SEC boss Gary Gensler repeated it days later.
Interestingly, BTC indeed shot up by a few thousand dollars following the encouraging words from Powell. Nevertheless, it’s worth having in mind that the US still intends to implement regulations on the cryptocurrency space but at least doesn’t want to follow China’s route.