Why Bitcoin Surged Recently and Where Is It Heading?

Bitcoin posted its biggest weekly advance since it peaked at USD 20 000 in December. Should you be excited?

by Kyzmoff
16 April • 2 min
In Analysis

What Lead Us Here

After diving to USD 6000 in the first week of February, HODL-ers started asking themselves if Bitcoin’s best days were in the past. An unexpected rally to nearly USD 12 000 in the next couple of weeks made investors even more nervous. However, after entering March at USD 11 000, prices quickly dwindled again and ended the month down 35% at USD 7000. Just as analysts were pointing at the correlation between the HODL term usage and cryptocurrency prices, the largest crypto coin soared yet again - this time by over 20% for a week, marking its largest weekly gain in 2018 so far. What is happening?

 

The Fundamental Side

The whales took over the crypto market in December as two of the largest futures exchanges, CME Group and CBOE announced plans to launch a Bitcoin-based future trading asset. A move welcomed by many who saw it as the beginning of the digital currencies implementation into the mainstream financial system. However, the case appeared to be different. Instead of investing in the Bitcoin market the whales shorted it. CBOE launched its crypto product on December 10 and CBOE – on December 18, and on the very next day, December 19, Bitcoin peaked. Since that, Bitcoin is over 60% down.

Recently, however, Tim McCourt, managing director and global head of equity products and alternative investments at CME Group, said that trading in the group’s Bitcoin futures product has become increasingly active, indicating that demand has been rising.

“It [trading volume] is steadily increasing each month,” McCourt said in an interview with the South China Morning Post.

According to the CME Group, in December the average daily trading volume was about 1,600 contracts. In March, the activity jumped to 2500 contracts, an increase of over 55% in less than four months. McCourt said he had also noticed increasing interest from institutional investors looking to get into the market, indicating fresh capital inflows looking to be injected into crypto.

With demand increasing and bearishness clearing out, it may be a good time to consider a long position. But let us just throw a technical eye into the analysis before concluding the whole outlook.

 

bitcoin-analysis-graph

 

The Technical Side

On February 6, Bitcoin touched the 200 daily simple moving average (SMA) for the first time since October 2015 (or more than two and a half years ago). After touching the 200 simple moving average, Bitcoin prices quickly rebounded, as I said earlier, to nearly USD 12 000. However, after that small surge, prices contracted yet again and the largest cryptocurrency was poised to test the 200 SMA for the second time in two months after years of not visiting these levels. Despite all the bearish signs, the 200 SMA proved to be the significant support, as we expected, and Bitcoin rebounded yet again, this time faster and stronger, making its largest upward weekly move in 2018 so far. The only question is if it will be strong enough to penetrate the 50 SMA. Until Bitcoin breaks out of between the two SMA zones, the trend remains neutral. 

 

Wrapping It Up

If the SMAs break each other, that will form a pattern called the Golden Cross. Keep an eye on that setup. The fact that demand is rising and many large investors are currently sitting on the sidelines is a sign for a big move ahead. Although it is too early to say what that move will be, it is good to be prepared. Right now the levels to watch are USD 7000 (200SMA) and USD 9000 (50SMA). A move above or below these levels will pretty much confirm where Bitcoin will be heading for the rest of year. (And possibly even for the rest of the decade)