Bitcoin continues to create suspense among investors as it touched $99,830 last week and increasing optimism of soon breaching $100,000-mark for the first time, the cryptocurrency hit an intra-day low of $90,770 on November 27. However on Thursday, it bounced back and was above $96,000 and is now continuing its march to create a new record.
Considered to be the oldest and most-traded cryptocurrency, bitcoin has been marching upward since Donald Trump's win in US Presidential polls. It gained almost 35 per cent of its value since the election.
Bitcoin has soared 120 per cent year-to-date and 42 per cent in November alone, getting a kick from Trump’s pro-crypto campaign promises, including his vision to make the US the "crypto capital of the planet."
What led to the rise?
The overnight rebound in bitcoin on Thursday was following a report by Fox News which stated that Trump’s administration wants to shift a bulk of crypto regulatory oversight to the Commodity Futures Trading Commission (CFTC) from the Securities and Exchange Commission (SEC).
The CFTC looks after the US derivatives market and is said to have less strict regulatory standards than SEC.
The report of the possible shift has brought some relief and cheer to the crypto industry.
Also, Trump is said to bring a pro-crypto candidate for SEC chair. As per a report by Bloomberg, veteran financial regulator Paul Atkins is among the top contenders to replace SEC chair Gary Gensler from January.
But why did bitcoin fall when it was so close to life-time high?
A report by CNBC quoted Brett Reeves of Crypto infrastructure firm BitGo as saying that historically, when new all-time highs are reached, there is typically a period of consolidation before further moves up.
"We could see a quick pick up in price activity," Reeves further said.
Let's take a look at the possible reasons for the fall in bitcoin price when it was just about to touch a record high.
1 - After a massive post-election rally last week, traders took profits.
2 - The broader cryptocurrency market declines as the dollar index rose 0.18 per cent to 107, supported by Trump's tariff announcements on imports from Canada, Mexico and China.
3 - When a dollar is strong, it typically dampens demand for bitcoin by tightening global liquidity and increasing costs for international buyers.
4 - As much as $11.8 billion worth of bitcoin options are due to expire on December 27 and investors are anticipating significant moves in either direction could be possible on that day. A Reuters report quoted Nick Forster, founder of OnChain options decentralised protocol Derive, as saying that the “call-put skew” index for the December 27 dated Bitcoin expiry showed a major drop of 30 per cent over the past day.
5 - “It suggests traders are hedging against potential downside risks. However, pullbacks like these are not uncommon in bull markets,” Forster said. The call-put skew is the difference in implied volatility between calls (options to buy) and puts (options to sell).
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