Dubai: Bitcoin’s $1,000 surge on Thursday sent shockwaves throughout the crypto market, with data indicating the crypto rally could be sustainable. And the UAE stands to profit from it as well.
Bitcoin recorded a significant rally that allowed it to erase virtually all of the losses resulting from the mid-March meltdown. This led other crypto coins to post notable gains as well.
“Bitcoin is slowly recovering from its coronavirus crash as appetite for risky assets improve and as the highly awaited halving event nears,” said Edward Moya, senior market analyst at OANDA.
The entire value of cryptocurrencies has jumped $71 billion in the past day. Bitcoin, which accounts for most of that movement, was at $9,200 — or up 16 per cent in the last 24 hours, according to data from CoinMarketCap.com. The latest rally led BTC from March lows of $3,800 to highs of just over $9,000.
The first digital coin has gained 6 per cent since the start of Thursday as of 11.30 GST. Now, analysts add that it will remain trading with a bullish bias in the short-term amid high volatility.
The second-largest coin Ethereum is currently changing hands at $220, rising by 8 per cent on a day-to-day basis and 2 per cent since Wednesday. Gains were recorded among others in the top 100 cryptocurrencies. Streamr DATAcoin (DATA) was up 63 per cent at $0.0808, Siacoin (SC) was up 35 per cent at $0.0023 and OmiseGO (OMG) was up 20 per cent $0.8119.
Rallying on ‘halvening’
Industry participants attribute the rally to two factors — central banks’ monetary policy, as well as an upcoming event known as bitcoin halving, or ‘Halvening’. The odd word is crypto-speak for a recurring ritual in which the supply of newly created Bitcoins entering the market — the lottery-like reward paid to Bitcoin “miners” for sustaining the network — drops by half. This will be the third such dropoff, which occurs about every four years.
Previous halving events too led to price rises. This is widely attributed to the process making it far more costly to mine for Bitcoin; since supply will likely increase at a slower rate, demand for individual Bitcoins increase, thus increasing the price.
“Bitcoin is also benefitting from a broadly weaker US dollar, which should see steady pressure as demand for safe-havens continue to ease as larger parts of the global economy reopen,” Moya added.
Stocks markets overall have not been reflecting the dire reality on the ground these past few weeks.
This, analysts say, is mostly the result of economies being extremely clear that they will do anything to make sure there is economic stability, with central banks pledging to keep their benchmark interest rates at record low levels until economies recover.
But now as a result of new money printing, analysts see cash flowing into equities, as well as crypto.
UAE blockchain projects
The nascent Bitcoin boom will put the UAE blockchain projects on a strong footing in coming days. The reason being that the rally comes on the heels of the country’s Securities and Commodities Authority (SCA) ruling on regulating crypto assets late last year, a move analysts widely considered providing greater clarity for crypto-related projects here.
The UAE has generally been considered having a supportive stance when it comes to the blockchain industry, barring a few highly restrictive countries, such as Iraq and Kuwait. The move signaled that the nation was open to creating guidelines that give more reassurance and stability to businesses owners who may want to enter this field.
The cryptocurrency’s ongoing recovery also proves to be more stable than those seen in years past, as data indicated that investors widely engaged in “dip buying” throughout the past several weeks. “The overall Bitcoin market is now in a more profitable state than it was prior to the crash – indicating investors bought the dip,” wrote analysts at blockchain analytics platform Glassnode.
With this upward trend coming after what appears to be a month-long bout of extreme accumulation from investors, analysts say the latest trend has been driven primarily by retail investors.
Data from blockchain intelligence platform Skew shows that interest on popular crypto trading platform Bitmex has been dwindling in recent times, which dropped on Thursday due to extensive short-position liquidations. What this suggests a lack of engagement from active crypto traders.
The bitcoin world works with so-called “miners” with high-powered computers competing to solve complex math problems to validate bitcoin transactions. Whoever wins that race gets rewarded in bitcoin.
Currently, miners are rewarded 12.5 per block mined. The rewards are halved every few years to keep a lid on inflation. By May, the reward per miner will be cut in half again, to 6.25 new bitcoin.
This essentially reduces the supply of bitcoin coming onto the market. Halving, or halvening, is an event that happens every four years. Previous halving events have preceded big price increases in bitcoin.
Bitcoin halvings are important events for traders because they reduce the number of new bitcoins being generated by the network. This limits the supply of new coins, so prices could rise if demand remains strong.