5 reasons why Bitcoin keeps hitting highs
5 reasons why Bitcoin keeps hitting highs
Spring 2017 showed us how intensively can Bitcoin grow in its rate. The price started with $1,000, then by the middle of May it reached $2,000, and in 2 months Bitcoin hit the record mark of $4,000 and kept rising. Of course, such a significant growth cannot continue forever, thereby current BTC/USD rate is $4,269 (According to CEX.IO, August 23).
Bitcoin is a very young currency, its fluctuations can be affected by any particular case from a joke in the Internet to a private company that at once invested a great amount of money in it. Although it seems rambling, you should know that each and every reason for Bitcoin price fluctuations is interconnected with many others. Every factor contributes to the appearance of another one, forming a sort of a cycle.
Now straight to the point, the 5 main reasons:
1. Japan accepted Bitcoin as a legal payment
If you google “Why Bitcoin rises in Spring 2017”, this will certainly be the title of almost every article you find. Japan government passed the law that sets Bitcoin at an asset-like value, meaning that you can exchange it and trade things with it. This fact evoked huge investments in the industry. Now Japan has one of the most advanced crypto markets. The law was enacted on August 1st. By entailing a massive aftermath, this was a boost that mostly affected the growth of Bitcoin price in Spring 2017.
2. Fiat is inflating - Bitcoin is deflating
The major boom of Bitcoin in Latin America occurred in 2015. The scope of the “event” was so large that, even in the year 2017, it still impacts the upsurge of Bitcoin price. The reason for such enthusiasm for Bitcoin among people was mostly driven by the economic situation within the countries. For instance, the inflation of national currency in Argentina has exceeded 700%. Of course, the deflating Bitcoin turned into a remedy for the citizens. But, what’s great in this situation, is that most countries didn’t hinder their people from using it. Instead, they have already defined Bitcoin in terms of law. This fact has significantly contributed to the increase in the amount of Bitcoin transactions in countries such as Brazil, Venezuela and Argentina. Latin America is no exception. Panama and Colombia have also shown the skyrocketing cryptocurrency market.
It may seem impossible, but Brexit actually affected Bitcoin as well, although indirectly. We are not going to discuss political issues, it’s not about the propriety of this act, but, in fact, it made British Pound less stable. Although it happened a year ago, it still affects Bitcoin price. If you look at the chart, you’ll see that British Pound is now at the lowest point of the last decade. Considering the fact that Bitcoin price follows an upward trend, some realized that investing in Bitcoin with Pounds is a good idea. Provided that some exchanges are located in Great Britain, this has become quite a prevalent way of keeping one’s savings.
In this way, the increased amount of GBP/BTC transactions have affected the price of Bitcoin.
3. Arbitrage opportunities
The rapid growth of Bitcoin exchange rate has led to a vast range of its prices in different exchanges, making arbitrage quite profitable. Arbitrage is a process when you buy a currency in one exchange, sell in the other and due to the difference in price make a profit from it. This is a hard task considering fiat currencies, because their volatility is very low, thus there is no essential difference in price between exchanges. As you can guess, Bitcoin appears to be very suitable for arbitrage especially during the times when its rate is bouncing. This Spring you could find the moment when the difference in exchange prices of Bitstamp and CEX.IO was almost $500.
Arbitrage is one of the reasons of Bitcoin continuous price increase. The amount of transactions in Bitcoin blockchain grows, making its rate do the same.
4. Countries where Bitcoin is not accepted began to relax grip on it
Maybe you are wondering what does this “relax grip” mean. Eventually, it turned out that the world-wide acceptance of Bitcoin is based not just on “YES” or “NO”. Since the cryptocurrency is something extremely new to the legal environment of certain countries it is hard to establish the laws considering it. That’s why there are a lot of countries where Bitcoin is technically forbidden, but practically in use. China is the best example. Although its government is still contentious about it, China holds the number of biggest mining farms and a considerable amount of transactions occur there.
Russian government is still uncertain about Bitcoin, but in respect that earlier they called it a surrogate currency and tried to ban it in different ways, now they nearly accept it and work on the regulation for Bitcoin. In this way, the amount of transactions on Russia’s part has recently increased, making the exchange rate go up.
In the year 2016 the Indian government adopted the demonetization law, asserting the influence on the use of Bitcoin there. Although it happened almost a year ago, this has also influenced Bitcoin price in Spring 2017.
5. The hype cycle
The hype around Bitcoin is not a specific reason of its upgoing exchange rate, it’s more of a feature, but it plays a significant role in it. The only thing Bitcoin needs is a certain launcher, after which this ‘hype cycle’ begins. At the time, Canada was a launcher, being one of the first countries to take the responsibility for regulating Bitcoin and businesses related with it (such as crypto exchanges). Canada then started working on the development of the blockchain-based Canadian dollar, which advanced the understanding of Bitcoin among regular people.
Well, that was some time ago. But here’s how this cycle worked considering the foregoing reasons of this article.… Japan accepts Bitcoin, thereby makes its rate and demand hit all time highs. This initiated a certain chain reaction in which British people start recognizing Bitcoin and find profitable ways of using it in their country. Chinese and Russian governments ease up the pressure upon cryptocurrency, in this way the amount of transactions and the exchange rates rocket up. Expert traders catch up on the situation and find ways for arbitrage and margin trading. The “cycle” will go on and on, until the price hits a certain point in which it stops (in our case it was $3000). Now it’s more of a stand-still period during which the price remains settled for some time and then go up again.
That’s it. Bitcoin is beating its record again and again not only because of Japan facilitation and not because British pound is devaluing, the source of its success is that it’s a breakthrough invention, that eventually proves itself in different spheres and among more and more people.
Article written by Mary Ann Callahan