The price of bitcoin rose sharply on July 18, giving hope that the bear market in cryptocurrency may be ending.
That’s the story the bulls are selling, anyway. But in fact, the two biggest trading days of the last month have seen less than $800 million in bitcoin change hands, on a market cap of anywhere from $109 billion at its low to $128 billion at its July 18 high.
That’s a 10% move in price while .6% of bitcoin traded. By way of comparison, the 5% move in Netflix (NASDAQ:NFLX) after its disappointing second quarter report on July 17 came on volume of 10.34 million shares, meaning 2.34% of the float traded. Netflix has a market cap of about $165 billion.
Price of Bitcoin Rises, Bulls Get Excited
To read the bitcoin press, most of which is controlled by bitcoin exchanges or bitcoin bulls, happy days are here again.
Bitcoinist, for instance, insists that bitcoin’s hard supply cap, its lack of regulation, and its mere survival mean the price of bitcoin is fated to rise to the skies. The Fear of Missing Out is back, and so are those pictures of Lamborghinis on city streets that get the young, male traders’ hearts racing.
Most speculation on today’s rising bitcoin prices focuses on the U.S. market.
The incoming CEO of Goldman Sachs (NYSE:GS), David Solomon, is said to be bitcoin-friendly. Coinbase, the largest U.S. bitcoin exchange, may soon sell tokens that are deemed securities, after buying broker-dealer Keystone Capital. Blackrock (NYSE:BLK), the largest U.S. asset manager, has a working group looking at bitcoin.
U.S. traders appear to be buying bitcoin — raising the price of bitcoin — in anticipation of greater market legitimacy ahead.
Bitcon’s ‘Strengths’ Continue to Hurt It
A closer look at trading volumes, however, shows that up to one-third of the trading on many days comes from Hong Kong-based Bitfinex. Bitfinex has been stepping away from the U.S. market, and recently lost its U.S.-based chief strategy officer, Phil Potter.
Bitfinex also owns tether, a so-called “stablecoin” pegged to the U.S. dollar. Whether it holds that many dollars, however, is subject to question. A June paper from the University of Texas charged that Bitfinex used tether to manipulate bitcoin price’s rise in 2017.
Thus, the big trading volumes are coming from a house that is exiting the U.S. and has been accused in the past of manipulating the market. This is the crypto market’s double-edged sword. It’s a global market, and the price is similar everywhere. But it’s also open to manipulation by any global player, and low trading volumes make that easy.
While cryptocurrencies are supposedly an open, transparent market where data is abundant for traders, in practice most coins don’t trade. They are mined or were obtained at the equivalent of CEO “options” prices, outside the market. While stock obtained through options is often turned over for quick profits, cryptocurrency isn’t. The market is much less liquid than it appears.
The spread between bid and ask prices can also vary widely, depending on where you trade. At Coinbase there is virtually no spread. At CEX.IO in London, by contrast, it can be over $150 per bitcoin. And let’s not even talk here about cryptocurrency’s energy use.
The Bottom Line on the Rising Price of Bitcoin
While cryptocurrency advocates claim their blockchains replace regulation, the fact is traders have no recourse against unscrupulous dealings of any sort, whether that’s price manipulation or outright theft of coins. Thieves can learn where owners live, shake them down for their keys, make off with the goods, and cops don’t follow.
Despite its 21st century trappings, in other words, bitcoin and other cryptocurrencies remain a 19th century market.
Dana Blankenhorn is a financial and technology journalist. He is the author of a mystery novella involving bitcoin, The Reluctant Detective Saves the World, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story, and no cryptocurrency. To follow the value of cryptocurrencies bookmark https://coinmarketcap.com/
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