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A rally of over 100%, then a crash of over 100%, and now rallying back by close to 100%. Yes, there is one such asset class which has been so volatile in just eight months of this year – and it is Bitcoin.
Bitcoin has given year-to-date returns of 65.05% till now and is currently trading at close to US$50,000. So, any such swing would mean a huge loss or gain for the investors.
In the last one year, Bitcoin rose from US$10,000 to US$64,000, then crashed to US$30,000, and is now rallying back – trading at US$48,145.72. But this rally may fizzle out fast. Here’s why:
- Exchange Inflows Surge: Exchanges have seen a surge in Bitcoin inflows into them. On Monday, the market witnessed the highest net inflow of Bitcoins into exchanges in over a month. Over the past week, more than 29,000 BTC have been moved to exchanges. Now, why should it be of significance to anyone? In the case of Bitcoins, investors usually move coins from their own wallets to exchanges when intend to sell them. Now, let’s assume that the demand-side remains unchanged, the increase in the exchange balance may put the brakes on the price rally, if only temporarily.
Will Bitcoin’s fast recovery fizzle out?
- High prices: With little to no asset backing this sort of volatility at such high prices amid an ongoing pandemic will obviously hit the subconscious mind of the investors – raising doubts.
- Whale put plug: Market makers in the cryptocurrency world are known as whales – the ones who can make or break the market. They had initially started accumulating coins after the mid-May price crash, but now have begun trimming their inventory. The supply held by the entities with a balance of 1,000 BTC to 10,000 BTC has declined by nearly 75,000 BTC over the past three weeks, diverging from the rising price.
