As is clear from derivative data, many market participants were surprised by the ongoing rally of Bitcoin. Over $ 1 billion in short positions on margin platforms such as BitMEX were reportedly liquidated last week alone.
After all, a 20% Bitcoin rally in a week is quite an achievement – even for the cryptocurrency.
BTC Chart from TradingView.com
What is even more confusing is what caused this rally. According to Cameron Winklevoss, the Bitcoin billionaire who founded Gemini together with his twin brother Tyler, there are two trends behind this rally. And they can be more obvious than some might think.
Related reading: Crypto Tidbits: Ethereum up 20%, US banks can hold BTC, DeFi still in Vogue
The 2 factors behind the continuing boom in Bitcoin and Ethereum
In a tweet published on August 1, Cameron Winkelvoss suggested that the ongoing rally in the cryptocurrency market is fueled by two catalysts:
- Bitcoin is used to hedge inflation risks triggered by money pressure from central banks and governments.
- Ethereum is experiencing an increase in acceptance and demand driven by growth in the cryptocurrency segment for decentralized finance (DeFi).
– Cameron Winklevoss (@winklevoss) August 1, 2020
The earlier narrative is something that Paul Tudor Jones, a billionaire hedge fund manager, followed.
Jones said in a May research note and CNBC interview that he assigns Bitcoin 1-2% of his portfolio to hedge inflation risks.
The latter narrative is controversial. Some commentators argue that DeFi sees an increase in innovation and acceptance, which is not a sure catalyst to increase cryptocurrency demand. Others say this is the main catalyst for Ethereum's 50% rally in the past seven days.
Related topics: Coinbase focuses on DeFi to list 19 new crypto assets
What will drive BTC in the long run?
While Bitcoin is currently being pushed up by the two trends above, it's worth asking what will drive demand for BTC in the long run.
Fidelity Investments, Wall Street's $ 2 trillion asset manager, recently attempted to answer this question in a report.
Five things were mentioned in the report released late last week that are likely to fuel long-term demand for Bitcoin. They are as follows:
- BTC as a hedge against low interest rates.
- Political and economic forces are driving deglobalization, which can drive up the cost of goods.
- Wall Street commentators like Paul Tudor Jones confirm Bitcoin.
- BTC acts as a long-term hedge against inflation risks.
- A "big asset transfer" that puts the tech-savvy millennials in the hands of wealth and increases the demand for Bitcoin over other asset classes.
Related Reading: The unexpected factor that suppressed the BTC bulls in 2019 is now over
Featured Image from Shutterstock Price tags: xbtusd, btcusd, btcusdt Charts from TradingView.com These 2 Factors Are Behind Bitcoin's 20% Eruption Higher: Industry Executive