Cryptocurrency investors were given some relief last week. Having seen the popular digital currency lose over 80% of its value since its December 2017 peak, the Bitcoin price dipped below $3,400 on Thursday before rallying back above $3,600 by Friday.
Bitcoin prices have held steady over the weekend, edging towards the $3,650 mark on Sunday, which is a promising sign for a repeat of its 2017 rally, when its value rocketed from less than $1,000 to almost $20,000. However, according to Nigel Green, chief executive of financial consultancy firm deVere Group, investors shouldn’t expect too much too soon.
“It was a relatively sudden jump, and, of course, positive news for those currently holding Bitcoin,” Green said. “However, the price only reached the top of the trading range and investors should not be popping champagne corks just yet.”
What caused the Bitcoin price to rise?
The Bitcoin price is notoriously turbulent, rising and falling both drastically and frequently in a matter of hours as a result of sometimes even the smallest of crypto-related events.
According to Green, similar forces were likely to thank for last week’s sudden rally.
“There are three likely drivers of Bitcoin’s price spike,” Green said. “First, there are widely published reports that according to a leaked interview with a commissioner, a Bitcoin ETF could imminently secure approval from the US securities watchdog.”
This is in reference to Robert Jackson Jr, a commissioner at the US Securities and Exchange Commission (SEC) stating his belief that a bitcoin exchange-traded fund, a publicly-traded investment fund, will likely one day be approved. Numerous Bitcoin ETF proposals have requested SEC approval. However, none have been approved as of yet.
Aside from vague news and rumours, Green also believes that the Bitcoin source code – and attempts to improve it – have also likely had a favourable impact on crypto prices.
Notably, Green highlights the development of the lightning network, a second layer payment protocol that enables faster Bitcoin transactions, as a particularly significant event. According to Green, the lightning network will “dramatically improve Bitcoin’s well-documented scalability issues, allowing it to move towards mass adoption”. If that is the case, the Bitcoin price would be expected to begin its ‘second life’ and surge once again.
The 2020 Bitcoin halving, which will see the code for mining Bitcoin halve, as it does every four years, will also be significant.
“When the code halves, miners receive 50% fewer coins every few minutes. History shows that there is typically a considerable Bitcoin surge resulting from halving events,” Green said.
However, it won’t just be Bitcoin that feels the impact of these future events. With cryptocurrency prices so closely linked to Bitcoin, those trading in digital currencies such as Ethereum and Ripple can also expect to reap the rewards of Bitcoin’s future success.
“Bitcoin is the flagship cryptocurrency and, as such, we can expect when its values climb, it will drive prices of other major digital currencies such as Ethereum and XRP,” Green concluded.