As the Bitcoin price exhibited more volatility recently – at one point leaping 35% in just 16 hours – crypto analysts scrambled to explain what happened.
The most obvious culprit was the Oct. 25 announcement by Chinese President Xi Jinping that his nation should “seize the opportunity” to adopt blockchain technology.
“We must take the blockchain as an important breakthrough for independent innovation of core technologies,” Xi reportedly said, speaking at the 18th collective study of the Political Bureau of the Central Committee in Beijing.
“[We must] clarify the main direction, increase investment, focus on a number of key core technologies, and accelerate the development of blockchain technology and industrial innovation.”
Xi spoke the same day the price of Bitcoin suddenly spiked. Most other cryptocurrencies shot up as well. Gains in China-based cryptos such as Neo, Qtum, Tron, Vechain, Bytom, and Ontology ranged from 25% to as much as 90%.
It’s clear the Chinese president’s statement was the primary catalyst.
When the leader of the world’s second-largest economy announces plans to embrace the technology that underpins most cryptocurrencies, it’s not shocking that traders would then rush to buy cryptocurrencies.
Whether China’s blockchain initiatives will have any practical effect on the use of other cryptocurrencies is debatable, however. In the case of Bitcoin, China has been tightening restrictions since late 2013. Bitcoin is banned from financial institutions and exchanges. It’s currently trying to end Bitcoin mining.
China is much more interested in crypto projects it can control and that reject all anonymity features.
But it’s also easy to see how the wake-up call of China taking blockchain tech very seriously could have a ripple effect. It could well motivate governments of other countries to take action to encourage the development of crypto-based tech in their own countries.
And that could be of enormous benefit to various crypto projects in the United States and elsewhere.
Still, that should not have been enough to drive a 35% spike in the Bitcoin price. Something more was going on…
The Other Reason for the Bitcoin Price Spike
Billy Bambrough, a crypto analyst writing for Forbes, suggested that a short squeeze contributed to the sudden move.
Bambrough said technical data prior to Xi’s announcement was pointing to lower prices, and that overall sentiment was negative. In other words, conditions were ripe for short sellers to bet against Bitcoin.
But when the price of Bitcoin started to jump following Xi’s speech, those investors needed to cover their positions fast to avoid losing any more money.
Bambrough cited data from analytics provider Skew that showed $150 million worth of short positions were liquidated within minutes.
The short squeeze most likely amplified the Bitcoin price spike.
All that said, these Bitcoin and crypto price gyrations – most cryptocurrencies follow Bitcoin’s lead in the markets – are really nothing to fret about.
Remember, it was just a month ago that I was telling you about Bitcoin’s sudden drop from just over $10,000 to below $8,000. This is how Bitcoin rolls.
What matters is that the long-term trend is bullish. People who own Bitcoin should continue to hold it (or “hodl” it, as they say on crypto Twitter). Those who are looking to build a position should buy the dips – but only invest as much as they can afford to lose.
I continue to believe that the many catalysts driving Bitcoin will push the price to $100,000 by the end of 2021. That’s the number to stay focused on.
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