Factors Behind Crypto’s Spectacular Rally
In the past seven days, the valuation of the crypto market has increased by $20 billion as the Ethereum price surged by 10 percent on the day.
Since early February, the Ethereum price has spiked from $102 to $163 by 60 percent against the U.S. dollar.
Some analysts have suggested that the strong price movement of Ethereum may have pushed the valuation of the crypto market to rapidly increase in the last three weeks.
Why is Ethereum Moving So Fast and What’s Behind the Crypto Rally?
In December of last year, economist Alex Krüger said that in the long run, the Constantinople hard fork of Ethereum is bullish for the price trend of ETH.
The analyst said that the hard fork, which refers to a protocol upgrade on a public blockchain network, will reduce the block rewards on Ethereum, decreasing the rate in which ETH is mined by miners on the network.
Krüger said at the time:
Ethereum’s Constantinople fork is coming on block 7080000, around January 16, 2019. Constantinople will reduce the block rewards from 3 to 2, decreasing new ETH supply accordingly. On the long run, this is decidedly bullish.
The block rewards reduction was decided on Aug 31 and it should have been priced in. However, exact timing was unknown. Implementation was initially delayed to end of January, and the date (or block, to be precise) was only agreed upon on Dec 7.
However, the Constantinople hard fork was delayed to February 25 and is set to occur tomorrow. It is likely that the anticipation towards the decline in block rewards is having an impact on the price trend of Ethereum because it reduces the potential supply of ETH in the months to come and increases the scarcity of the asset.
Last time $ETH longs/shorts ratio was this high was before the November 60% crash. Constantinople comes Feb/25. Cryptos often raise in anticipation of a fork -long the narrative- reach a local top days before, and crash into the fork. Mind the current crypto pump was ETH driven. https://t.co/jc4hLoWifb
— Alex Krüger (@krugermacro) February 22, 2019
Apart from Ethereum’s decrease in supply, fundamental factors such as the increase in the transaction volume of the Bitcoin network, a growing number of institutions investing in the crypto market, and the commitment of large-scale financial institutions such as Fidelity and ICE in the cryptocurrency sector could be contributing to the recent rally of the asset class.
On the technical side, Krüger noted that the chart of BTC, which often has a major effect on the price trend of the rest of the cryptocurrency market, contains all components of a bottom.
Many analysts have suggested that Bitcoin likely reached its bottom at $3,122 in early 2019 and is beginning its accumulation phase.
Don’t think this $BTC bottom is gonna look anything like in 2015.
Low $3Ks was your chance imo. If you didn’t take it with such ample time to do so, well…
— Lai Coi Zissou™ (@ZeusZissou) February 24, 2019
“The BTC chart has all the components of a bottom. Capitulation (Nov to Dec), bounced off long term trend measure, twice, on Dec & Feb (200 WMA), broke out from higher low in high volume (Now). A flush down on the last push lower would have increased bottom odds,” Krüger said.
Momentum is Key
In the near-term, momentum is key for the cryptocurrency market to continue its rally.
Currently, without the inflow of new capital into the asset class, there is already $6 billion waiting on the sidelines within the crypto space to invest in cryptocurrencies like Bitcoin and Ethereum.
Theres an estimated $2B in cash sitting at crypto funds/holdcos. Theres another $2B+ sitting in stablecoins, and another $2B sitting at exchanges/silvergate/signature.
This is $6B fiat already onboarded to crypto to buy your bags. Imagine thinking we need new money to hit $10k.
— Su Zhu (@zhusu) February 18, 2019
An overall improvement in the general sentiment towards the short-term performance of the cryptocurrency market and strong price movements of major digital assets could lead retail investors to engage in the upcoming weeks.
As Bitcoin demonstrated strength, small market cap tokens in the likes of Ontology, NEO, and OmiseGo recorded gains in the 15 to 20 percent range against the USD.
If the momentum of Bitcoin, Ethereum, and other major crypto assets can be sustained in the short-term, tokens are expected to experience prolonged upside movements in the foreseeable future.