Why bitcoin grows again in 2019

In recent times the price of Bitcoin has bounced back after long hiatus. BTC to USD has reached USD 11K+ in June 2019. The trading activity has increased and price surged over 200%. What happened? Why Bitcoin is growing again? The opaque nature of Bitcoin prohibits to know the exact reasons for the price surge. However, certain theories can be made based on experiences and knowledge of trading and other asset classes. They are discussed here along with a brief history of Bitcoin.

What is Bitcoin

Bitcoin is a cryptocurrency, a kind of digital money, which was invented by Satoshi Nakamoto. The actual identity of Satoshi Nakamoto is unknown, even it is not known whether it is a he or them, but everybody knows about Bitcoin. It is a virtual alternative currency made by a process called mining. It can be used for purchases of other currencies, services or products but mostly it is used for speculation purpose. It is not centrally regulated and hence it is often linked with illegal transactions. It is criticized for high price volatility and lack of regulation. There are various Bitcoin alternative cryptocurrencies or altcoins are in the market but Bitcoin was the first and till now it is the by far largest by market capitalization.

Rise and Fall of Bitcoin’s Price: Price volatility has always been a key feature of Bitcoin. Let us follow the trail of price from 2011 when it started at $0.30 (all values are given in the article as per Bitcoin basis unless said otherwise). In June price grew to the level of $31.50 and the fell at $4.77 within three months.

2012 was it was similar story starting at $5.27, growing to $13.30 crashing down to $3.80, then in August price again went high at $16.41 and within a period of three days in the same month fell by 57% to $7.10 level.

2013-14 it was a more level field where the price started in $13.30 and going up to $770 by January 2014 and ended in $314. It went on price at the end of 2016 was $998. 2017 ended at $13412.44 with an all-time high at $19783.06 in 17th December.
Then it was a downward spiral and the price fell down 81% from an all-time high to $3747 in 1st January 2019. At the time of writing the article June 2019, one Bitcoin stood at $11,681.90.

Sudden Rise in Bitcoin: What happened that within a span of 6 months Bitcoin price jumped more than 200%. That too after a fall of Bitcoin's price by 81% and more or less bearish 2018. There were certain changes in market dynamics. Why it happens well there are lots of theories but no one is sure of that.

Here are some of the possible and most realistic possibilities that might have fuelled the rise of Bitcoin.

  • US-Sino Relationship: Economy is a strange thing as it is interrelated with all the other aspects of global life. Politics is one of them, particularly if the politics directly aiming at trade relations. It is the scenario between the USA and China today. Mr. Donald Trump, the President of the United States of America, has been talking about trade relations with China and walked the talk by putting 25% tariffs on Chinese imports worth $200 billion. Within two days, China replied in the same manner. The stock indexes were tumbling and people were looking for a better hedge in non-correlated asset category of stocks. Bitcoin was there. Its lower price and track record made it attractive to the investors looking for alternative investment avenues, and the funds pumped in have pushed up the price of Bitcoin.
  • Good Publicity: Institutional investors, hedge funds, corporations were the first one talking trash about Bitcoin when it crashed in 2018. But the wind is moving in 2019. There is a lot of good publicity, media attention, everybody talking about Bitcoin, frankly, there is a high buzz around Bitcoin, that too positive. The same financial institutions, hedge funds are hedging in Bitcoin against US Stock indexes now and defending their decision by saying good stuff. with such good publicity, the confidence of general investors is coming back. This might also be another factor in the Bitcoins revival.
  • Halving of the Bitcoin Mining Reward: Within a year, the mining reward of Bitcoin is going to be half of the existing level, why and what is Bitcoin mining? A Bitcoin is minted when someone, or a group of people called miners, validates a block of complex transaction and rewarded with newly mined 10.4 Bitcoins. This is the mechanism of Bitcoin supply. the supply of Bitcoins thus mined will continue to increase up to 21 million Bitcoin, the maximum limit. Now Satoshi Nakamoto envisioned that supply might increase too fast and to continue Bitcoin for a longer period of time he installed the halving system to decrease the rate of Bitcoin infused in the market. Here the reward of number of Bitcoin, miners get after mining a block will be halved from the current level. It is expected to stabilize price and lower the supply. But the expectation of lower supply might have pushed the price up.
  • Liquidity: Economics 101 teaches us if product demand is more but supply is less the price increases. The same can be found in the case of Bitcoin. Here the market data is showing that as the trading activity is increasing, liquidity is decreasing. Hence the price is going up. There are several factors why liquidity is going down. There are holders who are waiting for a much higher rate and they are purchasing and holding the Bitcoin. Yet another group, particularly retail investors are there who had lost interest in Bitcoin investment in past one year and have forgotten the id password of the e-wallet. So many Bitcoin are confined in unused or unusable wallets. Resulting in the actual Bitcoin is less in the market than the theoretical one, hence the supply is less. Note unused and unusable wallets are different. Unused is where the investor has access but not using or trading, unusable wallet is where the investor has forgotten the password or key and locked out of the system.
  • The entry of Institutional Investors: There is a rise in the interest of institutional investors in Bitcoin. They are actively investing in and considering to invest. The institutional investors like Hedge Fund, Banks, Pensions, etc come with a deep pocket and they can invest a lot, that is a LOT, at one go. They are investing most of the cases to hedge their fund from potential stock market trouble, mostly related to trade relations of USA and China as discussed before. The USA is having troubled time with India as well, one of its largest markets. If the institutional investors actually start to invest in their full potential, the price indexes of BTC will rise exponentially.
  • Customer Expectation Fuelled by Technical Analysis: For any asset class trading in some place, technical analysis is a very important factor. Investors analysis the chart with much interest. The daily chart of the Bitcoin trading is showing signs of typical False Breakout pattern, which has been a typical signature of the market going up. The trading volume is rising and the number of trading positions has increased in December 2018, indicating that the market has bottomed out. Then there is only one way to go—upwards. The trading volume noticeably increased. These factors have shown a positive technical analysis. No rational investor will trade solely on technical analysis data, but first Bitcoin is so opaque there is hardly any fundamental analysis opportunity and secondly, investors do not always follow a rational way. This might be the reason that a significant number of investors are or will come back at the market and price will keep on increasing.
  • What investors say: The experts of investments are divided into two groups one for and another against Bitcoin investment. Trading veteran Glen Goodman, who famously profited from shorting stocks during the 2008 financial meltdown, is on the positive side and called the phenomenon as once in a generation opportunity. Dan Held the co-founder of Interchange an advisory company on cryptocurrency has marked the investment in cryptocurrencies as 'risk-off' investment against the shaking stock market prices. Whereas THE' famous investor, a billionaire by investment only, Warren Buffet stays on the ney saying side explaining cryptocurrency is not an investment, as it does not have any intrinsic value.

Majority of experts are saying Bitcoin looks like a worthy investment opportunity but its volatile history is one drawback.​

What are the expectations of the market: Just like the experts, the market is also debating on what to expect from Bitcoin. Crypto enthusiast is expecting the total market capitalization of cryptocurrency can grow up to USD 5-10 trillion in five years. However, Harvard University Professor of Economics and Public Policy Kenneth Rogoff is assuming long term value of Bitcoin will be much less than present value.

All in all market sentiment now expecting the price of Bitcoin to grow.


Conclusion: Will the price rise sustain? What will happen to BTC? Market sentiments are not only it will sustain but it will grow also. However, like any other asset class, nobody can be sure about the future of Bitcoin and its price indexes. What is sure though is the interest on Bitcoin has renewed again and the Bitcoin's interest will be there for a longer period of time.