We have just experienced the most significant monthly price gains by Bitcoin since November 2017. The cryptocurrency reached a new 10-month high at over $8,300. On May 11 we also witnessed the largest one-day trading volume ever!
Crypto enthusiasts and analysts are wondering what might have caused the uptrend. We gave you three mainstream explanations yesterday. Here’s another one for all of you that didn’t find them satisfying.
The Tether lead
Tether is a token based on Bitcoin and Ethereum blockchains. The idea was for it to be a stablecoin pegged to the US dollar at the 1:1 parity. For this to be possible, the cryptocurrency has to be backed by fiat currencies.
Since the beginning of April, the Tether supply has been steadily growing. Then on April 26, it turned out that one of the biggest crypto exchanges Bitfinex has lost substantial funds to fraud and had been masking the fact with what was supposed to be their Tether reserves. On April 30, the Tether revealed that only about 74 percent of the Tether reserves are backed with fiat money.
This caused a natural concern among all Tether owners. What was supposed to be a stablecoin has suddenly become a hot potato. And the fastest way to get rid of Tether is to buy Bitcoin.
This is just a hypothesis, but the increase of Tether supply by roughly $800M happened at the same time as Bitcoin’s two-month-long uptrend.
Now, let's move to the second stage - the unprecedented price spike on May 11, accompanied by the highest-ever daily trading volume. This happened precisely at the time when one of the world's biggest cryptocurrency exchanges Binance was closed. Binance had to halt the withdrawals and deposits after a hacking attack reported on May 7. The exchange reopened on May 15 after completing security upgrades.
Putting speculations aside, the fact is that the record Bitcoin trading volume happened when the market liquidity was limited substantially, while the recent two-month gains coincided with the substantial growth in supply in Tether.
This may be the explanation of what we have just witnessed in the cryptocurrency markets. Of course, even if the Bitcoin price was initially “pumped” by any group of investors, it may have sparked a global wave of bullish enthusiasm that may not only keep BTCUSD at the $8,000 levels but also turn into the next wave of long-term growth.