This year, Bitcoin and other cryptocurrencies have been the best-performing assets in the financial markets. Year-to-date, Bitcoin price has risen by 195% while that of Ethereum has risen by more than 90%. There are technical and fundamental reasons for this increase.
From a technical perspective, many investors bought into the currencies in January, after dropping sharply in the previous one year. This is through a strategy that is known as statistical arbitrage. Over the years, many investors have used this as an investment strategy and has worked relatively well.
From a fundamental perspective, there are a number of reasons why many investors have bought into the cryptocurrencies. First, Bitcoin halving is expected to happen in 2020. Halving is a process in which the block reward is cut into half. This usually leads to more supply constraints and is usually a bullish thing. Second, there has been interest in the industry.
Early this year, JP Morgan announced that it was creating a JPM Coin, which it will use for international funds transfers. This was viewed as a major news because of the size of JP Morgan, which is among the biggest banks in the world. This was followed by the recent announcement by Facebook that it was planning to launch Libra. Libra will be a cryptocurrency that will be backed by major assets like the USD and EUR. It will be used to make all types of offline and online transactions.
While the reaction to the news was positive, the momentum appears to have waned. This is because of a number of reasons. First, investors agree that the path to having Libra as a currency is still difficult. In his testimony this week, Jerome Powell said the following about the currency.
While the project’s sponsors hold out the possibility of public benefits, including improved financial access for consumers, Libra raises many serious concerns regarding privacy, money laundering, consumer protection and financial stability. These are concerns that should be thoroughly and publicly addressed before proceeding.
Many other regulators and politicians have expressed their concerns about the currency.
In addition to this, the security concerns about cryptocurrencies are still there. Yesterday, it was announced that cryptocurrency worth more than $32 million had been stolen from a Japanese exchange known as Bitpoint. Bitpoint is owned by a company known as Remixpoint, whose shares dropped by 20% after the announcement. The funds were stolen from a hot wallet that had five cryptocurrencies including Bitcoin and Bitcoin Cash.
The BTC/USD pair declined to a low of 11,000, which is lower than the 25-day and 14-day moving averages. The RSI is trading along the level of 40. There is a likelihood that the pair will continue moving lower to the important support of 10,000.