Bitcoin is famous for its volatility, but has been unusually calm in recent months. The digital currency ranged in a close price band of between $9,000 and $10,000 for almost all of the past three months – until last week’s sudden surge.
Last Monday, the price of Bitcoin reached $11,000, up from about $9,100 the week before. This is notable given that Bitcoin has failed to stay above the $10,000 threshold in the few cases where it broke this barrier and has not exceeded $10,500 in almost a year.
So what is causing this new price increase? There doesn’t seem to be a single factor, but several overlapping factors, according to experts.
Eric Turner of Messari Research says cryptocurrency traders make big profits from obscure digital currencies on so-called “DeFi” (decentralized finance) platforms. Turner assumes that many of these brokers have based their profits on the two most important cryptocurrencies, Bitcoin and Ethereum, and are raising the price.
Bitcoin prices may also rise thanks to last week’s letter from the Office of Monetary Policy Control, which gives banks the right to hold Bitcoin on behalf of their customers. Many in the cryptocurrency industry saw it as a signal of a rise and predicted it could lead to new investments in cryptocurrencies from large funds.
Another possible reason for the recent price increase is a general sense of fear and uncertainty around the world. Such sentiments could lead investors to seek assets such as gold amid concerns about the pandemic and geopolitical uncertainty. A report from The Block suggests that Bitcoin may be benefiting from the same phenomenon.
Finally, Bitcoin can grow on the basis of fundamental economic data.
None of the above provides a definitive explanation for the latest increase in the price of Bitcoin, and the latest increase could – like so many other rallies in cryptocurrency prices over the years – be temporary.