Bullish Sentiment Fuels Bitcoin's Return to $1,000
Bitcoin prices experienced notable gains this week, pushing higher as sentiment recovered from the lagging impact of market turmoil.The digital currency rose to as much as $1,024.14 on 3rd February, roughly 11.5% above its opening price of $918.56 on 28th January, according to the CoinDesk Bitcoin Price Index (BPI).At the time of the report, bitcoin was trading at $1,015.11, slightly below the weekly high.
This sharp gain compared to the tepid increase of 3% generated during the week through 27th January and the more notable rise of 7.9% produced during the prior week. Bitcoin’s price volatility was reasonably calm during this two-week period, as it relaxed after an intense price fluctuation experienced around the start of the year. Still, greater growth was seen outside the US dollar markets.
CNY-denominated bitcoin managed to enjoy even more robust gains, surging more than 20% during the week to a high of ¥7,186.17 after opening the week at ¥5,964.90, additional BPI figures show. At the time of the report, bitcoin was trading at ¥7,129.10, less than 1% below the weekly high reached earlier on 3rd February.
Sentiment slowly recovers
Analysts pointed to the recent improvement in sentiment as the impetus for the increases. Earlier this month, trader sentiment encountered headwinds when bitcoin’s sharp price volatility motivated the People’s Bank of China (PBoC) to intervene and meet with major Chinese exchanges BTCC, Huobi, and OKCoin. The startups later eliminated margin trading and began charging trading fees, two developments some have speculated would help reduce volatility.
However, bitcoin trading volume flooded to no-fee exchanges, which once again raised the question of which trading volume figures were reliable. More recently, traders have become more optimistic, according to several market observers. Algorithmic trader Jacob Eliosoff emphasized the key role that China’s investors and traders play in the bitcoin market, as well as their recent uptick in trading activity.
He stated that while their exact motivations may not be clear, it is certain that while these market participants “shied away from bitcoin” over the last few weeks, they “have come roaring back". Petar Zivkovski, COO of leveraged bitcoin trading platform Whaleclub, also stressed how PBoC intervention affected trader sentiment. "This was seen as a sign of legitimacy for bitcoin," he said.
Still, there are some who are waiting for further announcements. Zhou Shouji, an operator of China OTC trading firm FinTech Blockchain Group, said he is convinced further PBoC actions are forthcoming. "Everyone is waiting for the next PBoC action," he said. Further, he worried that without margin trading and automated trading, prices could collapse more quickly on any negative moves.
Already, exchanges appear to be expressing an eagerness to remove fees, with OKCoin pulling back an announcement it would ease prices. At press time, Huobi said it was not involved in any conversations to lower fees, while BTCC did not offer any statement.
Strong market dynamics
Yet, all this is occurring amid improving sentiment. Zivkovski spoke to how market dynamics helped fuel this rally: "This bull run was fueled by shorts closing, hence powering price up with more thrust, as well as a lack of sell orders on many exchanges, which created a liquidity vacuum that allowed the price to rise quickly," he said.
The robust nature of trader sentiment is illustrated by Whaleclub data, which shows that the market was an average of 84% long in the seven days between 28th January and 3rd February. During all but one of these sessions, the market was at least 80% long. Confidence, the extent by which a session’s positions are larger than usual, was an average of 82% during the seven days and was at least 80% in six of the last seven sessions.
Going forward, these market dynamics could help bitcoin create support at $1,000, something that would be "a first," according to Tim Enneking, chairman of Crypto Asset Management. He emphasized that "It will take a bit for $1,000 to become a support level," pointing to the price fluctuations taking place over the last 24 hours.
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