When Avivah Litan first saw the rumblings of a Bitcoin rally, her first thought was an honest one.
“At first I started thinking: Who’s manipulating the market,” said Litan, a blockchain analyst for research firm Gartner.
Since the beginning of March, the cryptocurrency has undergone a mega-rally, the likes of which has not been seen since 2017 when it stunned Wall Street by quickly accumulating buyers and trading over US$19,500. In two months, the price of Bitcoin has surged 117 per cent and was briefly trading above US$8,300. By 4:45 p.m. on Tuesday, it had lost some momentum and was trading at US$7,759.
Litan quickly discarded her first theory on what was behind the surge, but is unsure about what is driving the rally. Some have pointed to its potential as a safe haven being fulfilled, while others think the big players are simply inflating prices. There’s no consensus, she said.
What Litan knows is that the volume of trading is at an all-time high, surpassing even that of its glory days in 2017. It has come on the heels of Bitcoin topping US$6,000, a technical level that traders were waiting for the cryptocurrency to reach before pumping capital into it. And so the explanation may be a simple one, she said.
“It seems like pent-up legitimate demand that got released,” said Litan, describing a situation that had “dormant traders just sitting around waiting for the (US$6,000) point to break.”
(Thirty-eight) per cent is a crazy move for an asset, but for cryptocurrencies, it’s not crazy at all
Martin Lalonde, portfolio manager
The rally also appears to be supercharged by good news on the institutional side, with Fidelity Investments reportedly ramping up to launch crypto trading. When faced with negative news risk, such as the announcement that hackers withdrew 7,000 Bitcoins worth US$40 million from cryptocurrency exchange Binance, the rally still powered through.
After losing more than 83 per cent of its value in one year, Bitcoin lost much of the mainstream attention it had accrued due to its meteoric rise. Critics such as Warren Buffett called it a “delusion” that “attracts charlatans.” Undergoing a second boom of sorts could help bring back the confidence that some investors lost after the drop, Litan said.
Martin Lalonde, a portfolio manager who runs an active cryptocurrency fund for the Quebec-based Rivemont Investments, never lost faith. The cryptocurrency was oversold in 2018, he said, in the same way that it was overbought in 2017. The momentum behind each move carried it too far, he said.
Where Lalonde sees value in Bitcoin now is as a safe haven, given the escalation of trade tensions between the U.S. and China. Bitcoin’s bulls have long compared it to gold due to the prospect that it could be an alternative for when markets drag. It’s currently showing all of gold’s advantages, he said.
“I think some people are saying that I have assets, I have stocks, I have bonds and those might not be doing well in the future so do I have another option?” he said. “Yes, it’s bitcoin.”
The last five days alone, which coincided with the U.S. levying tariffs on US$200 billion worth of Chinese goods and Beijing promising to retaliate, have seen a 38 per cent spike in Bitcoin. Equities investors sold off amid the chaos and the Dow Jones Industrial Average lost more than 600 points on Monday alone.
Some investors may look at a 117 per cent rally as an opportunity to begin selling off on smaller positions. Lalonde refuses to do so, saying he’s not even thinking about it. His fund, which has an AUM between $3 million and $5 million, is designed for long-term investors who are bullish on cryptocurrency and see it blowing past its current levels.
“(Thirty-eight) per cent is a crazy move for an asset, but for cryptocurrencies, it’s not crazy at all,” said Lalonde, referencing the five-day move. “Crazy would be 2,000 per cent.”
The recent activity has its skeptics. Digital currency critic David Gerard argues that the rally may have been manufactured by Bitcoin whales — those with the largest positions — attempting to squeeze short sellers out of the market.
“I just don’t believe we have a pile of new interested traders piling into Bitcoin,” he wrote in a blog post on Monday.