If you have kept in touch with recent market price action, you might have realized that only a few weeks ago, the crypto market struggled to maintain any meaningful bullish momentum. So, why the drastic turn of events?
In this piece, we take a broad overview of some occurrences in the market responsible for the change in market direction and possible bullish continuation into the winter.
Historical Crypto Price Action
Before giving any other factors behind the rise in the crypto market, it is pertinent to highlight the historical price behavior around this time of year.
Notably, aggressive bullish recoveries are commonplace in October, earning it the nickname “Uptober.” According to data from Bybt, October recorded a bullish close most of the time since 2013, with a success rate of more than 77%.
In 2019, Bitcoin jumped by 10.27% in October after closing September with a bearish -13.56%. Last year, the cryptocurrency surged by over 28.05% in October and recorded a monthly close at $13,800 after ending September on the back foot with $10,800. Bitcoin ended up rallying by an additional 110% into the end of 2020 and closed at a record high of $29,000.
A similar scene is in the making this year as Bitcoin picks up bullish steam ahead of year’s end. The primary cryptocurrency closed in September at $43,800, a -7.05% monthly close, but jumped by over $38% so far in October. BTC printed a new record high of $67,000 this month but has since dropped to the $61,000 area (at press time). Interestingly, a similar +100% rally witnessed in 2020 could occur this year due to factors we shall discuss later.
That said, September has repeatedly closed on a bearish footing and has recorded losses seven out of nine times since 2013. On the other hand, October is the month of massive dip-buying and has recorded a positive outcome seven out of nine times since 2013.
With this factor, it becomes apparent that bears might have gone to hibernate for the winter (pun intended) and why bulls could continue to dominate and pump the market into year’s end.
The Cryptocurrency Regulation Factor
The current bullish price action in the market also has its roots in the ongoing cryptocurrency regulatory discussions from US regulatory bodies.
Speaking before the US House Committee on Financial Services earlier this month, US Securities and Exchange Commission Chairman Gary Gensler argued that the crypto industry needs more regulation. According to Gensler, most cryptocurrencies are not currencies but merely investment vehicles that should fall under the purview of US securities law. The SEC chair noted that:
“It’s unlikely that 5 or 6,000 forms of private currency are going to persist. Economic history tells us that’s unlikely. So a lot of these are not currencies. They are not being used to buy a cup of coffee at Starbucks… Most of them are investment vehicles, ways to raise money for entrepreneurs in the US.”
However, Gensler acknowledged that some crypto assets compete with gold or silver, representing a “digital speculative store of value as gold is a speculative store of value over the centuries.”
Gensler’s stance builds upon the precedent laid out by the former SEC Chair Jay Clayton, who ruled that Bitcoin and Ethereum are not securities.
Moving on, the SEC and other US financial regulators, like the Treasury Department and Federal Reserve, aim at structuring a comprehensive regulatory framework around Stablecoins at the issuer and platform levels. While Stablecoin regulation might not directly affect the price of other cryptos, like Bitcoin, it could have a ripple effect on the broader crypto industry.
Also, regulatory announcements sometimes trigger erratic price action in the already volatile crypto market. Nonetheless, many experts agree that increased regulation is a good thing for the industry.
Commenting on the development, CEO of CoinFlip Ben Weiss noted that: “Sensible regulation is a win for everyone,” adding that “It gives people more confidence in crypto, but I think it’s something we have to take our time on, and we have to get it right.”
Because regulatory intentions were previously obscure, the clarification of regulatory plans has contributed massively to the bullish pickup recorded at the beginning of October.
Bitcoin ETF Approval in the US
Bitcoin has recorded yet another breakthrough with the recent approval of two Bitcoin Exchange-Traded Funds (ETFs) in the US within a week. The first BTC ETF, ProShares Bitcoin Strategy ETF (with ticker symbol BITO), went live on the New York Stock Exchange on October 19 amid intense fanfare. While the second, Valkyrie Bitcoin ETF (with ticker symbol BTF), launched on the same platform three days later.
The excitement leading up to the launch of BITO acts as the primary catalyst behind Bitcoin’s meteoric rise to the $67K record high in October. Reports show that the trading volume around BITO on its debut ran over $1 billion, reflecting the excitement in the market. This new development opens up an exciting and less risky avenue for institutional investors to get exposure to Bitcoin without necessarily owning any.
Commenting on the development, Gary Gensler noted at the Aspen Security Forum that: “We do it in the equity market, we do it in the bond markets, people might want it here.”
Before now, prospective BTC ETF issuers’ numerous applications to launch an ETF in the US fell on deaf ears for several years. With this, the electrifying excitement around the launch of BITO and BTF becomes clear. That said, several other ETFs awaiting approval could get the green light in the coming weeks or months.
Increased Inflow of Institutional Investments
In its beginning stages, Bitcoin and other cryptocurrencies got looked down on by institutional investors, many of whom described the asset class as showy and worthless, favored by criminals.
Over the years, these opinions have changed drastically, with institutional adoption and investment in cryptocurrency recording significant rises. One of the drivers of the recent increased adoption is the out-of-the-world performance of Bitcoin and altcoins over recent years.
These days, it is almost a prerequisite for institutions to have a portion of their holdings in crypto. Family offices, hedge funds, and traditional investment firms are all flooding the crypto space, with a jaw-dropping $17 billion worth of institutional capital finding its way into the industry this year alone (as of August).
A recent study by Fidelity Digital Assets revealed some interesting data on crypto adoption by institutions. According to the 2021 Institutional Investor Digital Assets Study tracking the behavior of institutional investors, market conditions play a critical role for many investors looking to grab a piece of the crypto industry.
The study revealed that European investors had a more progressive view towards crypto than their American counterparts in every regard, similar to findings from last year. The survey detailed that:
“Across Europe and the, we saw year-over-year growth across nearly every category, including perception and appeal, current exposure, and propensity for future investment.”
However, Asian investors showed the most positive inclination towards investing in cryptocurrency, with 70% of all Asian investors surveyed admitting to holding these assets. That said, this year was the first time Asian investors took part in the survey.
Meanwhile, among all 1,100 investors surveyed, 52% noted that they had direct investments in crypto, while 90% of investors said they found the asset class appealing.
Bitcoin Hash Rate Recovery
In July, the Chinese government outlawed cryptocurrency mining within its jurisdiction, which shook the crypto industry significantly considering the critical role Chinese miners played in the industry. The ban caused the abrupt shut down of millions of computers processing transactions in the industry. Before the government ban, China accounted for 65% of the total Bitcoin hash power globally. Mining rigs went offline, so did the hash rate, which negatively affected the market.
In September, the Chinese government, yet again, announced the outright ban of all crypto activities in the country, triggering intense FUD across the industry. However, unlike the market reaction to the first ban, the market absolved the news well while keeping bearish price reactions to the minimum.
This event signaled to the crypto community that China has completely lost its hold on the industry, and future announcements from China might have zero effect on the industry.
That said, the Bitcoin hash rate has rebounded to pre-China ban levels, which is an additional bullish factor for the market and further explains why bears are away.
While the overall bias is overwhelmingly bullish, with predictions of Bitcoin reaching $100,000 before year’s end, we could still experience minor bearish corrections along the way. Nonetheless, a sustained bearish move from now until early 2022 seems highly unlikely.