Bitcoin has seen an extremely strong rally in recent months – despite its ongoing decline.
The cryptocurrency is currently trading for $37,000 and has risen by around 100 per cent in the last six weeks. In the last six months, even more.
Other cryptocurrencies besides BTC have also done well.
Chart of BTC’s price performance over the last six weeks from TradingView.com.
But what is behind the ongoing bull market? A Singapore-based trading desk suspects that the bitcoin rally is largely a by-product of institutional inflows entering the bitcoin market through Grayscale. Grayscale Investments is a New York-based digital asset manager focused on institutions.
What has driven bitcoin up?
Prop trading firm and liquidity provider QCP Capital estimates that Bitcoin Loophole Bitcoin’s recent rally is largely a by-product of Grayscale’s Bitcoin Trust, an institutional investment product for BTC.
Bitcoin began to show signs of weakness (spot buying pressure shifted to futures buying pressure) when Grayscale temporarily suspended inflows in late December.
The sell-off peaked earlier this week when the fund’s suspension ended, QCP explains:
„Previously, we highlighted GBTC as too big to fail in our New Year’s update, and the sell-off on Monday/Tuesday peaked at the end of their two-week fund suspension for new investors. On Wednesday they reopened and this has curbed the sell-off as ~5k of BTC has been added to their funds in just the 2 days since.“
The firm believes this is a sign that Grayscale’s inflows are indeed a big part of the demand for bitcoin on the spot side:
„Undoubtedly, GBTC inflows will remain the driving force for the market, at least until a US ETF is approved – something we don’t expect to happen anytime soon.“
As for the technical outlook for BTC, they seem confident that the overall macro trend for the leading crypto asset remains bullish.
Bitcoin has maintained its parabolic uptrend over the past week despite falling as low as $30,000, traders say.
According to them, while the increased volatility is a worrying sign, so far it is „perfectly consistent with an exponential trend at this stage“.
Earlier last week, analysts commented that the extremely high volume seen in the $30,000 correction in the bitcoin market on Monday was likely a sign that a reversal was approaching.
Volume spikes are often a sign of price reversals as they mark an exhaustion of a bull or bear trend.
One reason why some are concerned is that there was a development in the Mt. Gox case that could lead to an influx of bitcoin (To Buy Bitcoin With Credit Card Guide) into the market.