A Bitcoin logo on the screen of a cryptocurrency automated teller machine inside a store in Prague, Czech Republic. (Photo: Milan Jaros / Bloomberg) 
Bitcoin hit another all-time high last week, but it’s not just digital magic making these numbers climb. There are real forces at play.
Large institutions, investment firms and corporations are swirling in the bitcoin waters that have been chummed up with exchange-traded funds (ETFs) and direct purchases, creating what analysts call “sustained upward pressure”.
This institutional embrace has shifted the tide. Unlike previous rallies driven by retail enthusiasm, this swell lacks the signs of public Fomo – no soaring Google searches, no crypto apps shooting up the download charts.
The maths is simple: when fewer bitcoins remain on exchanges (because institutions are holding them) and demand stays strong, prices rise.
In a happy coincidence, US lawmakers have reviewed major cryptocurrency legislation. When the world’s largest economy signals that it is taking crypto seriously, markets respond. Beyond the crypto-specific factors, bitcoin is benefiting from the US Federal Reserve’s low interest rates, and easier monetary policies are pushing investors towards riskier assets in search of higher returns. Add a weakening US dollar into the mix and bitcoin becomes increasingly attractive as an alternative store of value.
Despite the euphoria, seasoned analysts are flagging potential rough seas. One clear signal is “whale activity” – large bitcoin holders have been depositing substantial amounts onto exchanges, often a sign that they intend to sell (dump).
What stirred the waters was news of an ancient “Satoshi-era” whale who had held 80,000 bitcoins since 2011 and recently transferred coins worth more than $4.6-billion. Such massive profit-taking can trigger significant corrections.
Christo de Wit, country manager for South Africa at Luno, offers a crucial reality check. He points out that the Relative Strength Index shows overbought levels – typically a warning sign of incoming volatility.
“We encourage users to invest responsibly and only what they can afford to lose,” De Wit warns.
This might seem like standard disclaimer language, but it’s worth heeding. DM
This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.
