Opinion | Will it continue to rise? There is a risk of a sharp rise in Bitcoin prices

The price of Bitcoin has been volatile recently, reaching a three-year high on November 30. Market participants believe that factors such as increased demand for risky assets, institutional entry, and halving of production have pushed up the value of the currency, but given the sharp fluctuations in digital assets, the unilateral upward trend is unlikely to continue.

According to a Reuters article, Bitcoin has risen by more than 170% this year. The reasons for the rise include: the increase in demand for risky assets under unprecedented fiscal and monetary stimulus measures, the desire for inflation-fighting assets, and the expectation that cryptocurrencies will gain mainstream recognition.

“Against the backdrop of rapidly increasing central bank money supply and a consensus that inflation is already rising, Bitcoin is a natural safe-haven asset for investors seeking protection,” said Nazarov, co-founder of Chainlink.

The Wall Street Journal article also pointed out that this round of gains came against the backdrop of a general rebound in the entire market. The Federal Reserve and other central banks have injected trillions of dollars worth of liquidity into the capital market, and several companies developing COVID-19 vaccines have brought hope that the epidemic will be brought under control.

In addition, Huobi senior analyst Kang Luzhi said that the new high in Bitcoin prices was driven by the halving of production from a macro-cyclical perspective. The so-called halving means that the reward of each block, that is, the Bitcoin production, will be halved after every 210,000 blocks. After the first two halvings, Bitcoin ushered in a round of sharp rises.

Kang Luzhi said that the market will not continue to rise, and breaking through the historical high does not mean that the market will continue to rise. However, it will have a strong impact on the psychological level of investors, and the market may form a certain buying consensus.

It is worth noting that the biggest difference between this round of halving and the previous ones is the obvious participation of institutions. Payment platforms such as Paypal have opened digital currency transactions. The Guggenheim Macro Opportunities Fund recently announced an application to invest $500 million in the Grayscale Bitcoin Trust. These institutional moves have boosted confidence in the digital currency market. Bloomberg article quoted a report from JPMorgan analysts saying that family wealth management funds are selling their gold ETFs and holding digital currencies such as Bitcoin. Since November 6, gold trading funds have sold 93 tons of gold, worth about $5 billion.

Kang Luzhi reminded that a unilateral upward trend is not a sign of a healthy market, so market participants should pay attention to risk control in the near future.