Last week bitcoin broke out above prior resistance at $470, after coiling up inside a 6 month ascending triangle. China is the driving force of this bull trend, taking a 5-10% lead over the USD markets. The breakout happened on the exact day that China devalued the Yuan at over a five-year low.
The price of bitcoin broke new highs for both 2015-16 and is currently consolidating after a correction. If the price stays above $500 support then there is a good change it’ll make another leg up into the $650-$680 area.
Traders and investors have been anticipating this bull trend for months as we approach the halving of the mining rewards. At the end of July the block rewards are being reduced from 25 to 12.5 coins, which will bring the inflation down from 8.8% to 4.4%. Miners need higher prices in order to pay for operational costs and we’re likely already experiencing reduced selling pressure as miners may be hoarding their coins till after the halving. The last bitcoin halving was at the end of 2012 and the price went from $12 to $1200 the following year.
The price of bitcoin is determined on the free market and there is no one exchange that sets its value. There are many price discrepancies between exchanges, this can open up arbitrage opportunities for those who know how to navigate around the friction of moving fiat.
Bitcoin’s Impact on Altcoins
Most alternative cryptocurrencies like Ether have an inverse relationship to the price of bitcoin. The majority of altcoin trading volume is paired against BTC, which makes bitcoin the main driver of the ecosystem. Similar to how the USD is used to compare value on the forex markets, bitcoin acts as a type of reserve currency for crypto.
Bitcoin has the most liquidity, fiat pairings and is used as a gateway to get exposure to other cryptocurrencies. Bitcoin is being used predominantly as a store of value and hedge against economic uncertainty. This is likely the main reason why the Chinese are pouring money into the markets and buying up supply.
Over the coming months I expect to see new price highs and an increase in volatility, which is the perfect storm for traders to make a lot of profit.
