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Bitcoin enjoyed sharp gains during the first six months of this year, rising more than 200% as the digital currency benefited from numerous tailwinds.
The cryptocurrency, which started out 2019 below $4,000, climbed to nearly $14,000 in late June, according to CoinDesk data.
The digital asset finished the first half of the year at $11,139.22, returning 202% in that time, additional CoinDesk figures show.
Bitcoin volatility was relatively modest during the first quarter, but increased significantly during the second.
While the digital currency was up only 11.7% year-to-date (YTD) at the end of March, it had risen 44.3%, 131.7% and 201.86% by the end of April, May and June.
[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
Multiple Tailwinds
When explaining what drove these gains, some analysts highlighted a variety of potential causes.
Erik Finman, a young entrepreneur and early bitcoin adopter, listed several “key components.”
He specifically mentioned “1. Tariffs (when they were happening) 2. Election season 3. Major retail companies like AT&T accepting Bitcoin 4. New platforms like CoinBits emerging to provide access to Bitcoin investments 5. Facebook Libra coin.”
“These 5 things did not exist in the first quarter and are changing the way people look at cryptocurrency,” he emphasized.
Jeff Dorman, chief investment officer of asset manager Arca, also pointed to numerous factors as fueling bitcoin's recent gains.
“There was a confluence of many real macro events/catalysts that led to Bitcoin's rise,” said Dorman, including “trade wars,” “Flight to safety from countries with tight capital controls (China)” and growing awareness of the digital currency.
Institutional Interest
One bullish factor singled out by several market observers was increased institutional interest.
This contrasts sharply with the bull run that bitcoin experienced between 2017 and 2018, which was attributed largely to retail investors.
The latest run-up “certainly has not been a retail-led rally, which is very notable for the space,” said Cole Walton, cofounder of Plouton Mining and head trader at Kanos Capital Management, LLC.
“Google searches have not spiked and anecdotal accounts have confirmed the general public does not fully believe bitcoin is back yet,” he added.
Joe DiPasquale, CEO of cryptocurrency fund of hedge funds BitBull Capital, also weighed in.
“Bitcoin price grew rather steadily in the first quarter of this year as compared to the violent movements of late because the sentiment shift was not retail oriented,” he stated.
“We believe institutions were actively buying Bitcoin since it's lows late last year and retail investors only joined in once major psychological barriers were broken, namely the $10k level.”
Libra
Several analysts singled out the hype surrounding libra, the cryptocurrency that social media giant Facebook plans to release.
The company formally announced its intention to release this digital currency, designed to allow seamless transactions between parties around the world, on June 18th, according to TechCrunch.
Facebook's plans have provoked a deluge of media coverage, with some lawmakers calling for the social media giant to halt all development on the project.
Since the company had nearly 2.4 billion monthly active users as of March 31st, it can potentially tap a very sizable market by offering its user base the ability to make timely transactions.
Dorman spoke to this, noting that the launch of this cryptocurrency “immediately introduces 2 billion people to digital wallets.”
Walton emphasized that if libra gets off the ground, it “will be the biggest on-ramp into crypto we have seen yet, and institutional money knows this.”
Leverage/Derivatives
Market observers also pointed to the key role that derivatives and leveraged trading played in pushing bitcoin higher.
Dipasquale, for example, described these factors as “instrumental” to the cryptocurrency's gains.
Dave Hendricks, cofounder and CEO of digital asset management platform Vertalo, also commented on this situation, emphasizing how the market has matured over time.
“During the 2017 run up Bitcoin didn't even have a futures market in place,” he emphasized.
“In the 18 months since the ATH, many more institutions have started following and investing in BTC,” said Hendricks.
“With new leverage products and a more sophisticated buyer base, it's possible for larger leveraged orders to impact the market,” he noted.
Sentiment Data
One form of information that can help market observers understand bitcoin's robust gains is sentiment data.
Joshua Frank, cofounder of digital analytics platform TheTIE.io, helped shed some light on this particular area.
The chart below, provided by his company, plots the sentiment (measured by collecting and assessing social media posts) of bitcoin, along with the number of tweets surrounding the cryptocurrency.
The blue line represents tweet volume, while the purple line corresponds with long-term sentiment, which is calculated by conversations on Twitter over the last 50 days to a 200-day moving average.
The TIE
“After bottoming in December 2018, the long-term sentiment on Bitcoin has continued to grow in each over the last 7 months,” noted Frank.
“Tweet volumes (blue line middle chart) have continued to increase over the last year.”
“Continued increases in positive long-term sentiment means that conversations around cryptocurrency are increasingly becoming more positive,” he emphasized.
Frank also weighed in on libra, and how its announcement affected the sentiment surrounding bitcoin.
“After Facebook’s official partner list for Libra Coin was revealed on June 14th sentiment on Bitcoin almost immediately flipped positive leading significant upwards price movement,” he noted.
Going forward, he provided a rosy outlook for the world's most prominent digital currency.
“Conversations around Bitcoin remain bullish and we anticipate that Bitcoin, while volatile, will continue to see upwards price movement.”
Disclosure: I own some bitcoin, bitcoin cash and ether.
