It has been an explosive past few days for the price of bitcoin, wrote Nick Ching in an article for Forbes. Within the span of merely two days, the cryptocurrency gained over 20%, peaking at just above $9,500. It was a move that liquidated dozens of millions worth of futures positions on BitMEX, data from Skew.com shows.
According to Mohit Sorout, partner at cryptocurrency hedge fund Bitazu Capital, what drove the rally was an influx of buying activity on spot cryptocurrency exchanges such as Coinbase, not buying activity on derivatives platforms.
Spot exchanges differ from derivatives platforms in that they facilitate crypto to fiat trades without borrowed capital, unlike futures exchanges, which allow their users to utilize leverage.
Sorout found that as bitcoin pressed higher, the open interest on BitMEX hit a “new all-time low,” reaching 50,000 BTC. Prior to March’s crash to $3,700, BitMEX’s open interest was closer to 100,000 BTC, according to Skew.com.
This metric reaching an all-time low is significant because it suggests that the speculative contracts, the futures, “no longer dominate the price of bitcoin,” Sorout explained. Instead, it was spot markets that were “leading this uptrend.”
The trader also found that as BitMEX’s open interest plunged, the price of BTC on Coinbase and on BitMEX continued to deviate from one another, creating a positive basis indicative of consistent buy-side pressure in the spot markets.
Corroborating this is Bitwise’s trading volume dashboard, which reported nearly $5 billion worth of bitcoin spot trades over a 24-hour period during the move past $9,000. On most days, this figure is closer to $2-3 billion.
Binance, which is the top exchange on Bitwise’s volume dashboard, registered a new all-time high in trading activity on April 29. Much of this trading activity took place on Binance’s Bitcoin/USDT and Ethereum/USDT markets.
What’s behind the spike?
Behind the recent jump in buying activity on cryptocurrency exchanges is a positive trend of fundamentals for bitcoin.
In approximately 11 days, according to BitcoinBlockHalf.com, bitcoin will see its latest block reward reduction, also known as a halving. Halvings are automated events that ensure the number of coins issued per block gets cut in half every four years.
At the start of April, Google Trends data indicated that the popularity of the term “bitcoin halving” had begun to increase at a rapid clip. This trend has continued into the start of May, with the search engine reporting that global users are searching for information about the event more than ever before.
Similarly, cryptocurrency marketer and writer “Molly” reported on April 22 that the Chinese term for “bitcoin halving” briefly became the sixth-most popular trending search term on Weibo, a social media platform with over 400 million active users.
Also boosting BTC is the response by central banks to the ongoing slowdown in the global economy.
Michael Collett, a co-founder of digital asset management platform Stack, told Forbes contributor Charles Bovaird recently: “Set against the broader context of excessive monetary easing policies and ‘unlimited’ economic stimuli in major economies, [bitcoin’s recent] gains are likely just the beginning.”
The confluence of a decrease of leverage in the cryptocurrency market and an increase in spot exchange activity, spurred by positive fundamentals, gives credence to the sentiment that bitcoin is preparing to enter a sustainable uptrend in the weeks ahead.
Bitcoin dominance may signal bull run
Meanwhile, the current bitcoin market dominance appears to replicate what happened in 2017, wrote Albert Kim in an article for Cryptopolitan. With much talk centered on the upcoming bitcoin halving, the market leader appears to be putting behind the Black Thursday crash to take full control of the market.
Crypto investors appear to have forgotten altcoins exist and their full interest is on bitcoin. Many crypto holders are staking on BTC ahead of the having hoping to gain from any benefits the even might usher in.
With many critics predicting a low of $3,000, the coin appears to go against the predictions and eating into the altcoin market; a similar trend that was experienced when BTC fell short of hitting a high of $20,000 in late 2017.
The bitcoin market dominance is a clear indication that more crypto investors are finding the coin more attractive than before. With a dominance of 65% at press time, it is clear that altcoins are only sharing a paltry 35%. This means investors are putting their money where there are prospects on high returns.
It has not been rosy for bitcoin; in 2018 bitcoin market dominance nose-dived. This pushed investors to hide behind less risky altcoins and it appears they are abandoning the safe havens back to bitcoins in anticipation of goodies after the halving.
It is important to note the speed at which the current bitcoin market dominance is building up. The past few days have seen a flurry of activities around the coin and the growth is unique. As per data streaming from Massari, an analytics outfit, the trends are similar to when the coin skyrocketed
The pump might be ignited by the impending bitcoin halving which might lower the inflation levels to counterbalance the rewards resulting from mining. Fewer coins will be entering the marketplace and this will make the coin scarce and this could determine the direction bitcoin market dominance goes.