Bitcoin‘s price spiked over $1,000 in 39 minutes yesterday (April 12, 2018). This is the largest short-term, single growth in the history of crypto currencies. The rapid climb started with a single large order on the Bitfinex exchange followed by successive orders in other exchanges. This unexpected turn of events contradicts all market analysis of a continuing downturn trend towards $4,000 per Bitcoin. But most importantly, it begs the question of whether this is and actual market recovery or just a bear or bull trap.
Despite all the negativity surrounding the crypto market, there are strong signs that the bear market is ending. Major infrastructure projects are maturing and achieving implementation. For example, this week EOS launched latest version of their test platform Dawn 3.0, and Fusion (FSN) launched their Virtual Machine platform. In addition, there was a lot of buzz about wealthy investors entering the crypto market. Of particular interest would be George Soros, a high volume investor notorious for buying into markets at their lowest points and then re-selling making huge profits in the process. This lends truth to the rumors that institutional investors are behind the initial buy orders. However, other theories exist.
A simpler explanation is price manipulation. Some contend that the price surge correlates closely with the shorting of Bitcoin in the Futures market. Most speculators believed that the bear market would drive the price of Bitcoin further down. Therefore, they shorted Bitcoin and bet that the price drop would reach $4,000 and below. However, when the opposite happened and prices rose, the shorts with big positions were force to sell. This in turn, created a momentum in the opposite direction. It is likely that a lot of buyers that were sitting on the fence jumped in for fear of missing out. The overall buying frenzy added a much needed $30 billion to the total crypto currency market cap.
But as welcoming as this short recovery is, it is also a dangerous time for investors. Unless, the uptrend develops organically by technological development and restored investor confidence, the market can drop again at any time. This is called a bear trap; a false signal of an upward trend when the opposite is about to happen. There is strong evidence to support the possibility of a bull trap. If evidence reveals that a bear trap occurred in the futures market, it would certainly mean that this rise in price is synthetic and prone to fail.
Only time will tell which direction the market will take. However, with so much uncertainty, the best course of action is to hold one’s position and not to buy. For any investing during this period will become a loss if the market loses its support and prices drop again. As public interest and institutional investment continue to grow, the crypto market is set to rebound. However, investors must recognize the ever present risks and rely on data and not impulse in order to profit in the future.