The notoriously volatile bitcoin spot rate has exhibited rare stability over the past eight sessions, a sign that one of the world’s most volatile assets may be on the path to long-term recovery. Bitcoin traders are now asking: what’s next?
Bitcoin Shows Rare Stability
Bitcoin’s recent price movement can be described in many ways: a narrow trading range, a technical hurdle or even the long-awaited stability that many in the crypto community believe is necessary for long-term adoption. Regardless of how you describe it, bitcoin is currently experiencing its smallest price fluctuations in almost six months.
Prior to Thursday’s rally, the digital currency had traded between roughly $8,675 and $9,210 over the past week. Prices peaked above $9,800 on Thursday, the highest since early March. The digital currency was last seen trading around $9,585 for a total market capitalization of $163 billion.
Given the recent moves, prices have found support above the 50-day moving average, which Fundstrat Global Advisors has pegged at about $8,600. The firm, which has become popular among cryptocurrency traders for its insight into bitcoin, recently told Bloomberg that a break above $9,700 could propel BTC higher in the short term.
Bitcoin’s recent streak of narrow moves is both comforting and frustrating if you are a cryptocurrency investor. Although the digital currency skyrocketed in April en route to its strongest month of gains since the December peak, the fundamentals suggest many more milestones can be squeezed out of the latest rally. However, the recent slowdown in growth likely means that a repeat of April is unlikely this month. What’s more, percentage gains of the magnitude we saw in 2017 may be long over for bitcoin. Neither of these things is inherently bad, and as we will soon show, the near future is still very bright.
Why Is Bitcoin So Volatile?
Bitcoin’s reputation for being extremely volatile is well deserved, with price trends over the last few months adding further credence to the fact. The digital currency peaked near $20,000 in December before plunging below $6,000 just a few months later.
Several factors continue to underpin bitcoin’s extreme price fluctuations, chief among them being low liquidity, bad press and varying opinions about its perceived value. The debate over bitcoin’s status as a currency or commodity also makes it difficult to predict how investors will respond to the asset.
Those who hold a larger portion of bitcoin also contribute to the volatility when they decide to convert it into fiat currency. As we’ve seen repeatedly, the ‘bitcoin whales‘ have a tendency to generate oversized moves in the market.
Proponents of bitcoin and digital currency more generally believe the answer to many of these challenges lies in institutional adoption. A greater inflow of institutional cash, combined with more options to trade the digital asset, could propel the market forward. Institutions currently play a smaller role in the market but that is expected to change very soon.
America’s largest exchanges are already trading bitcoin futures contracts. The Chicago Board Options Exchange (CBOE) is also leading broader efforts to list bitcoin-based exchange-traded funds (ETFs), a move that could link crypto to a multi-trillion-dollar market, and one of the fastest growing to boot. Recent news of Goldman Sachs entering the bitcoin market will also bolster institutional presence and possibly encourage other banks to join its ranks.
That said, extreme value swings aren’t expected to go away anytime soon. For early adopters, that could turn into a positive if the bulls are correct in their belief that bitcoin is destined for new highs this year.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock.