What Caused the Unexpected Bitcoin Rally of 2019?

June 2019 has been an incredible month for Bitcoin, as it has demonstrated an impressive rally, updating the year-to-date peak. On (June 26, 2019) the largest cryptocurrency by market cap touched the highest level of this year, at $13,785, before losing momentum and wiping out significant parts of the gains. And on (June 29, 2019) Bitcoin is trading at around $11,970. The big question is – what caused this latest Bitcoin Rally in 2019?

Bitcoin Rally Quick Facts:

  • Bitcoin started June 2019 at around $8,500 and is ended trading at $11,970 by the end of June, after touching an annual peak at $13,785. Thus, the coin has gained about 40% over the month.
  • Since the start of 2019, Bitcoin has gained over 220%.
  • The last time when Bitcoin traded over $13,500 was on January 16, 2018. Thus, the coin recently reached the highest level in 18 months.
  • Bitcoin showed record activity on the crypto exchanges around the world. On June 27, the 24-hour volume exceeded the $46 billion mark for the first time ever.
  • Bitcoin’s dominance level surged to 62.91%, the highest since mid-December 2017. This shows that altcoins still cannot diminish BTC’s relevance.
Percentage of Total Market Capitalization - Bitcoin Rally 2019
Source: Coinmarketcap.com – Global Charts Total Market Capitalization

What’s Behind the Bitcoin Rally?

There have been several favorable circumstances that has strongly supported the Bitcoin price. Here are some positive news and events that might have pushed the BTC quote:

Sino-US Trade War

Bitcoin’s first glimpses of a strong rally started amid re-escalating trade tensions between the US and China. US President Donald Trump imposed a 25% import tariff of Chinese goods worth $250 billion and threatened he could impose the same tariff to all products made in China. Xi Jinping, the president of Asia’s largest economy, responded with tariffs as well.

Each country prepared lists of unwelcomed foreign companies. For example, Chinese smartphone maker Huawei has been in the headlines in the last few months, as Trump wants to reduce its presence in the US on suspicions of illegal data collection and espionage. The difficult situation between the US and China has a negative impact on the global economy, with some experts warning that global economic growth might slow.

Last month, Pamela Coke-Hamilton, the head of international trade at the UN Conference on Trade and Development (Unctad), stated during a news conference that the trade war might lead to huge costs. She said:

“There’ll be currency wars and devaluation, stagflation leading to job losses and higher unemployment and more importantly, the possibility of a contagion effect, or what we call a reactionary effect, leading to a cascade of other trade distortionary measures.”

Source: Reuters.com – U.S.-China tariff hike would trigger downturn, trade diversion: U.N

The concerns over a global economic slowdown are forcing investors to turn to so-called safe-haven assets, which represent assets that aren’t directly hit by central banks’ monetary policies. Thus, commodities like gold and silver are among the biggest gainers in such moments of crisis. However, Bitcoin is also considered a safe-haven in circumstances like this one, as it helps investors avoid potential losses caused by weakening stock markets and fiat currencies. This is why the cryptocurrency has reacted positively on the re-escalating trade tensions.

At the beginning of June, DailyFX’s senior currency strategist Christopher Vecchio said that Bitcoin would greatly benefit from the trade war:

In an environment where the global financial system looks like it is potentially at risk because of the world’s two largest economies going at odds, people may be looking for alternative avenues to find ways to circumvent the capital controls being put in place to move their money around without the Chinese or U.S. government taking stock of it.”

Source: CCN – US-China Trade War Will Boost Bitcoin Price to $20,000: Analyst

Elsewhere, crypto expert and investor Oliver Isaacs also noted that the trade war was the biggest catalyst behind the Bitcoin surge. He predicted that the coin might reach the $25,000 mark by the end of this year. He said:

There are multiple drivers behind the recent resurgence. There are geopolitical, technological and regulatory drivers. The net effect of the trade war between the US and China has led to the sudden interest in bitcoin as a hedge on investments.”

Source: CCN – US-China Trade War Will Boost Bitcoin Price to $20,000: Analyst

On June 29 and 30, leaders of the 20 most powerful countries of the world are meeting in Osaka, Japan, to discuss various geopolitical and economic problems. Obviously, Donald Trump and Xi Jinping are there, potentially reaching a temporary deal that could ease the trade tensions. According to the latest news from the G20 summit, Trump and Xi indeed agreed to restart talks, with the US president saying that he wouldn’t extend the tariffs for now.

FOMO (Fear of Missing Out)

Even if the US and China secure the best possible trade deal, Bitcoin would not return to previous low levels. This is also because the fear of missing out (FOMO) is too obvious to leave the coin below the $10,000 level.

FOMO was among the main drivers behind the massive rally that led Bitcoin to the record high at around $20,000 in December 2017.
The current rally might be associated with a similar FOMO as well, though, as we’ll see below, crypto watchers claim that this rally is different.

Nevertheless, speculators don’t want to miss the chance of generating profits from Bitcoin’s uptrend, so they buy today hoping to see prices even higher. This supports the cryptocurrency’s demand, which in turn pushes the price up indeed. However, any FOMO-based rally has an unpleasant end, so we hope that the FOMO effect, in this case, is only a secondary element.

Facebook Libra

The crypto community has been aware that Facebook was onto something really big, as the social media giant had hired dozens of blockchain experts last year. However, more details of the project have emerged only in the previous few weeks.

On June 19, the company led by Mark Zuckerberg finally announced its cryptocurrency called Libra. The upcoming coin has already sparked waves of reactions from regulators, central banks, and politicians around the world. There is a fear that the new coin, which has the ambition to become a global cryptocurrency, might undermine the power of fiat currencies. Considering that Facebook has about 2.4 billion users, the concerns are reasonable.

Jerome Powell, chairman of the US Federal Reserve, had some talks with FB representatives about Libra, which will act as a stablecoin pegged to a basket of fiat currencies. He said:

There are potential benefits here; there are also potential risks, particularly of a currency that could potentially have large application. We will wind up having quite high expectations from a safety and soundness and regulatory standpoint if they do decide to move forward with something.”

Source: CNBC – Facebook discussed the launch of its cryptocurrency with the Fed, Jerome Powell says

However, even if central banks and politicians are openly expressing their concerns over Libra, the crypto community is quite curious about how it will work. In general, this has been received as positive news for the crypto industry, as it drives blockchain and cryptocurrency adoption. This is why Bitcoin has also benefited from the news.

Lower Interest Rates

The economic situation of the eurozone and the US is slightly deteriorating, including because of the trade tensions discussed above. The eurozone is also affected by the Brexit saga, in which the UK cannot reach a proper deal on how to exit the European Union (EU). Besides this, nationalist movements are getting more traction in Europe, fueling Euroscepticism.

In this context, the European Central Bank (ECB) announced that it would increase its stimulus measures to support the economy, including by cutting interest rates. On the other side of the Atlantic, the Fed said last week that it was ready to cut interest rates too, with many economists anticipating another rate cut by the end of this year.

The point is that whenever a central bank is cutting interest rates on loans, the national currency is weakening, as investors don’t find it attractive it anymore. Since fiat deposits aren’t such relevant, investors are moving their capital to other markets, thus boosting various market sectors and businesses. This is how economic growth can be achieved through lower rates and more stimulus, and this is what the ECB and the Fed are targeting right now.

However, weakening fiat currencies result in more interest in alternative investments, including in Bitcoin. A weak US dollar would definitely boost the price of Bitcoin, including from the side of institutional investors.
Neil Wilson, chief market analyst for Markets.com, explained:

“The liquidity injection from central banks has forced a range of assets like gold, bonds, the yen etc, so bitcoin is just being swept along by those macro currents.”

Source: The Guardian – Bank of England Predicts No-Deal Brexit Rate Cut, Attacks Funds Built on ‘Lies’ – Business Live

Besides the mentioned drivers that are currently moving Bitcoin, there have been more positive news, events and technical analysis hints that supported the price. For example, earlier this week, the Commodities Futures Trading Commission (CFTC) announced that it had approved LedgerX’s application to launch Bitcoin futures with physical delivery.

How the 2019 Bitcoin Rally was Different

While there are good chances that Bitcoin could perform an uptrend similar to that seen in December 2017, crypto investors consider that the current rally is different. However, some use the “different” label with a positive connotation while others with a negative one.

Those who endorse the current rally claim that the Bitcoin surge in 2017 was driven by speculators and excessive mass media coverage. Campbell Harvey, a finance professor at Duke and crypto expert, told Inverse:

“I was very clear in December 2017, that what we were experiencing in the bitcoin space was a speculative bubble. The number of new accounts that opened didn’t make a lot of sense, and people were investing purely for speculation. That bubble burst.”

Source: Inverse – Bitcoin Bubble 2019: Why the Summer Rally is Nothing Like the One in 2017

Harvey says that the crypto industry has matured since then and behaves differently now. According to him, cryptocurrencies are improving, noting a massive adoption including among institutional investors who used to rely on traditional markets. On the other side, consumers can actually pay with Bitcoin in real stores.

Elsewhere, John Sedunov, an assistant professor of finance at Villanova University, also agreed that the Bitcoin market has matured:

“There are more reasons to believe in bitcoin now than there were the last time [Bitcoin was at $10,000 when he gave the comment] though I’m still not convinced that the price is sustainable.”

Source: The Wall Street Journal – Bitcoin Is Back Above $10,000 and Investors Say This Rally Is Different

Other crypto watchers say that BTC’s price surge is driven by whales this time. If we look around, the media coverage on cryptocurrencies is far from what it was in late 2017, which proves that Bitcoin is inflating despite nobody really caring about it.

As Bloomberg noted, during the peak in December 2017, about 19,000 people were registered into the Reddit’s Bitcoin subgroup, while today there are only 11,000 users there. Also, a Reddit post from 2017 titled “Bought at $19,500 AMA” accumulated over 1,000 comments, while a recent post “The big $12k Bitcoin” has only 285 comments.

The silence from media is regarded as the main proof that Bitcoin is pushed by whales this time, instead of retail investors looking to speculate on the price.

Larry Cermak, head analyst at The Block, noted:

“It’s not retail driving this. Looking at the data, it’s likely driven by a handful of whales.”

Source: Yahoo News Decrypt – Why is this Bitcoin rally different from all other Bitcoin rallies?

Whether it’s bad or good, everyone agrees that the current rally is not the same as the surge from late 2017.

Can Bitcoin Update its Record?

So, the big question is – can Bitcoin reach the $20,000 mark by the end of the year? If you have watched the rally during the last two months, you would agree that this scenario is more than realistic. There isn’t that much of a distance till a new record.

Tom Lee, research chief at Fundstrat Global Advisors and well-known Bitcoin bull, said that the new peak is just around the corner. He told CNBC’s Futures Now:

We’re deep into a bull market, and people are pretty silent about it. I think bitcoin is easily going to take out its all-time highs.”

Source: CNBC – ‘Bitcoin is Easily Going to Take Out its All-Time Highs’: Fundstrat’s Tom Lee

Elsewhere, eToro analyst Simon Peters said on June 26 that Bitcoin could update the all-time high within two weeks and jump to $50,000 and even $100,000 by the end of the year. He argues that it took up to two weeks for Bitcoin to traverse from $11,500 to $20,000 back in December 2017. Asked about the rally’s sustainability, the analyst said:

With the number of sell positions building in the market it’s possible we could see a correction very soon. Even if that was the case though, bitcoin continues to remain on track to close out the first half of the year on a highly positive note. We could see bitcoin reaching $50,000 or even $100,000 this year.”

Source: CoinTelegraph – Bitcoin Price Could See $20K in Two Weeks – $100K This Year, Predicts Market Analyst

While Peters’ prediction might sound too daring, Bitcoin actually has the potential to touch a new record high by the end of the year, and there is one more reason to support this argument, and this is related to mining.

If you’re familiar with how the mining process works with Bitcoin, you know that it is becoming more and more difficult to generate profits from this activity. Traders are expecting now the “Bitcoin Halving,” an event after which the mining rewards are cut in half. As of today, the number of BTC rewarded to network miners is 12.5. However, this figure will be reduced to 6.25 BTC by May 2020. Some analysts say that such an event affects the supply of the coin, which consequently boosts the price.

Mati Greenspan, senior market analyst at eToro, explained:

Bitcoin’s current inflation rate is approximately 3.76%. In May of next year, it’s scheduled to be reduced to 1.8%.”

Source: CNBC – There’s Another Reason Behind Bitcoin’s 200% Rise this Year — it’s got Nothing to do with Facebook

The contraction of supply versus increasing demand would definitely support the quotation. CryptoCompare CEO Charles Hayter told CNBC:

It’s the tightening of supply that forces the price upwards and the anticipation of less liquidity coming onto the market.”

Source: CNBC – There’s Another Reason Behind Bitcoin’s 200% Rise this Year — it’s got Nothing to do with Facebook

Besides, competition among miners increases. The mining difficulty has recently touched a record high, according to Blockchain.com data on June 27.

Bitcoin Network Difficulty - Bitcoin Rally 2019
Source: Blockchain.com – Bitcoin Block Mining Network Difficulty

Mining difficulty, which adapts to the network hash rate every 2016 blocks, increased to 7.86 trillion, a new all-time high, exceeding the previous record from October of last year.  

Earlier this year, Pantera Capital anticipated a Bitcoin rally driven by the halving effect. The crypto hedge fund explained:

“Inflection points occurred 376 and 320 days prior to the 2012 and 2016 ‘halvings’, respectively. Taking their average of 348 days could indicate a bottom on June 10, 2019.”

Source: Pantera Capital – Block Reward Halving and Venture Fund III Closing :: Pantera Blockchain Letter, March 2019

Interestingly, on June 10, Bitcoin touched the lowest level of the month, and suddenly the rally erupted. It seems that analysts at Pantera Capital were right indeed.

In conclusion, while predicting Bitcoin has always been a challenge (in fact, many gave up this practice given the massive failures in the past), many crypto analysts agree that the oldest cryptocurrency out there is on track to update its record soon, despite the recent correction. Will it happen before the start of 2020? We don’t know. The certain thing is that this isn’t Bitcoin’s last word. 

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