Why Bitcoin just smashed upwards to rise over 15% in an hour
Bitcoin swung the hammer and rang the bell on $5,000. Let's see who predicted this?
Bitcoin prices have abruptly spiked, rising around 15% in an hour flat to a new four month high.
The rest of the cyptocurrency markets followed suit shortly afterwards, but unusually for the cryptocurrency markets, Bitcoin itself is leading the pack, and outpacing the rest of the market with its rise.
The abrupt move has market-watchers wondering; is Bitcoin back?
Why Bitcoin just rose so fast
Some analysts believe the massive movement was caused by organic market forces, and were predicting a rise in volatility on the road ahead, even before the rise hit. This expectation was based on the fact that Bitcoin has been quietly broaching and then sustaining key support levels in the months ahead without any drastic moves.
If you pull back a bit and look at the last month, you can see that Bitcoin has been patiently climbing to new support levels over the last few weeks.
As the theory goes, over the last month Bitcoin has managed to sustain itself at above $4,000, and the precursor for this move arrived around 29 March when Bitcoin comfortably rose above the key support level of $4,100 and then stayed there without any dramatic moves either way.
This tight trading range set the stage for a big move in either direction, kind of like a slow build-up of pressure. No one was entirely sure which way it could have gone, but in this case it went up.
In this sense, the big question isn't why Bitcoin's moving, but why it's moving so much, and what make it go up instead of down.
Why up and not down?
What little historical precedent there is says the next big move for Bitcoin should be upwards. In that context, it's not entirely unexpected to see Bitcoin popping like a champagne cork after this kind of pressure build-up.
Basically, the Bitcoin markets have been acting in a weird, yet comfortingly familiar way in the last couple of months. Specifically, it's formed an uncanny replica of the markets of 2015, from right before Bitcoin began its momentous rise to the 2017 highs.
There are lots of reasons for sentiment to skew to the optimistic here.
So with that in mind, what made the rise hit so hard and so fast?
Why so fast?
One part of the theory might be that it's due to the turn of the month. By ending March on a high note, above that $4,100 support level, there may have been a higher degree of confidence in Bitcoin than you'd get at other times.
The rise itself may have been accentuated by a good old fashioned short squeeze.
This is basically when a wave of buying pressure comes in to raise prices, which liquidates short positions. As those short positions are liquidated they fuel the rise further, which in turn fuels more buying, which liquidates more shorts and so on. In certain situations this can result in momentous rises in very short timeframes. It looks like that's what happened here.
Or maybe some big money traders were taken in by an April Fools Day article announcing the go-ahead of Bitcoin ETFs. If nothing else, that would explain why Bitcoin outpaced the rest of the markets in the rise.
Disclosure: The author holds ETH at the time of writing.