Key catalysts behind the abrupt increase in the bitcoin price within a short time frame remain unclear; some have suggested the overall improvement in sentiment around the crypto market and an increase in demand from retail investors.
The bitcoin price surges by nearly 11 percent within several hours as it achieves a new 2019 high (source: coinmarketcap.com)
One of the main factors supporting the 11 percent rally of bitcoin may have been the liquidation of hundreds of millions of dollars worth of short contracts on BitMEX, the most widely utilized crypto margin trading platform.
As the bitcoin price initially climbed above $8,500, it liquidated many short contracts filed by bears anticipating BTC to drop in an expected pullback.
Could CME bitcoin futures market be another catalyst?
The overnight surge in the bitcoin price occurred on a Sunday evening in the U.S. market, when the CME bitcoin futures market was closed and other investment vehicles like Grayscale’s Bitcoin Investment Trust (GBTC) are not traded.
Although the impact of CME on the price of the dominant cryptocurrency was largely dismissed up until early 2018, new research from Bitwise Asset Management revealed that CME accounts for nearly half of all BTC spot trading.
On May 14, the daily volume of the CME bitcoin futures market hit a staggering $1.3 billion, its all-time high. Currently, the verifiable daily spot volume of bitcoin is estimated to be around $1.7 billion.
If the liquidation of BitMEX contracts pushed the bitcoin price up in the past 24 hours, considering that the CME futures market accounts for a large portion of the global volume of BTC, CME could serve as a catalyst for the next potential upside movement of BTC.
CME Bitcoin futures reached an all-time record high of 33.7K contracts on May 13 (168K equivalent bitcoin), up nearly 50% from the last record of 22.5K contracts on April 4. See how market participants are using $BTC to manage uncertainty: https://t.co/hDgraMj5pe pic.twitter.com/ct1xkjoJDF
— CMEGroup (@CMEGroup) May 13, 2019
As seen in the abrupt decline in the bitcoin price from $8,000 to $6,400 on May 17 triggered by the liquidation of BitMEX contracts, the futures market and margin trading platforms have a significant effect on the landscape of the crypto exchange market.
Can the momentum be sustained?
The sustainability of the volume on CME, BitMEX, and other major exchanges would dictate the near-term trend of BTC.
Based on the performance of the asset in the past two weeks and the presence of little resistance above $8,500, analysts expect the asset to test the $10,000 level in the medium-term.
Tim Draper, a billionaire investor, said on Bloomberg that fundamentally, bitcoin remains strong against fiat currencies with a bright long-term outlook.
He said:
When people ask, ‘so what do you think has happened with bitcoin?’ I say well, one bitcoin is still one bitcoin. It always has been and it always will be. There’s only 21 million of them and you probably should get one as opposed to thinking or comparing it against the fiat currency.
I look at currencies and I say all the other currencies are very volatile against bitcoin because they know that this is really transforming the world. And so these currencies that are tied to political forces or dictatorships or even the dollar, which really does have political influence and the monetary policy has to be so precise to get it just right, why bother?
It is possible that the momentum of the crypto market continues to push bitcoin to the upside despite some technical indicators signaling oversold conditions for quite awhile.