The volatile and unpredictable bitcoin market stayed true to form on Thursday, sending bitcoin prices soaring 17 percent to as high as $8,011 before dropping 5 percent to around $7,600. As is often the case in the bitcoin market, there’s no obvious reason for the wild price swings, and bitcoin’s 2018 trading pattern remains bearish.
With the price of bitcoin down 43 percent year-to-date, the cryptocurrency has become popular among short sellers, who have piled into bitcoin to place bets on a bursting bubble. CNBC reports that Thursday morning’s spike in bitcoin prices forced many of these short sellers to close out their positions by buying bitcoin and driving prices even higher.
[Read: What You Need to Know About Bitcoin and Cryptocurrency.]
“Once [bitcoin] broke higher, shorts were squeezed and forced to cover,” says Brian Kelly, CEO of BKCM.
Another possible explanation for Thursday’s move is that bitcoin is experiencing a relief rally after an extended period of selling prior to the U.S. tax filing deadline. Long-term bitcoin investors are sitting on massive capital gains from 2017, and many of these investors may have dumping some of their holdings in recent weeks to help pay their tax bills. Now that tax season is almost over, the selling pressure could be dying down, opening the door for investors to buy on the dip.
Regardless of the reason for Thursday’s rally, bitcoin still has a long way to go to get back on a bullish track. So far this year, each bitcoin rally has been met with selling, and bitcoin has made a series of lower price peaks and lower price troughs, a textbook bearish trading pattern.
Morgan Stanley recently said bitcoin’s trading action so far in 2018 is extremely similar to how the Nasdaq traded during the bursting of the dot-com bubble in 2000.
Analyst Sheena Shah says each wave of bitcoin selling in 2018 has resulted in a roughly 45 to 50 percent decline from the previous peak, a familiar pattern.
[Read: What’s the Best Bitcoin Wallet?]
“The Nasdaq’s bear market from 2000 had five price declines, averaging a surprisingly similar amount of 44 percent,” Shah says.
In addition, Shan says trading volume during the periods of rising prices has been declining, while volume during the sell-offs is climbing.
“Rising trade volumes are thus not an indication of more investor activity but instead a rush to get out,” Shah says.
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Latest Bitcoin Rally Runs Out Of Steam originally appeared on usnews.com
