Halving and Yuan Deprecation: Why Bitcoin Price Grows

Over the course of these two weeks, bitcoin has broken several records having surpassed the $500, $600 and $700 marks in a sequence. ForkLog talked with cryptocurrency trading expert Kir Kelevra to find out the reasons for the upsurge and the perspectives it might provide to traders.

As we reported earlier, bitcoin price growing was followed by quite expected cheapening of altcoins. However, ETH, the second capitalized cryptocurrency, as well as The DAO assets have also gained some value on the background of the basic cryptocurrency’s consolidation (+17.17%) against USD. The tokens in question have grown by 8.58% and 6.6% respectively against bitcoin. Notably, even though ETH and DAO tokens volatility exceeds that of bitcoin, the correlation between their exchange rate and bitcoin’s is obvious.

The charts were taken from Coinmarketcap.com

According to Coinmarketcap, the average price of bitcoin at the time of writing has retreated to $675.40 having lost 2.37% of its value over the course of a day. We asked Kir Kelevra, investor and cryptotrader, what future holds for the markets.


Kir Kelevra

FL: Bitcoin’s been skyrocketing for a week. What market factors justify the growth?

Kir Kelevra: As of early June, there were two substantial factors to cause bitcoin to gain value.

First, the forthcoming reward halving creates the upward trend for miners, who have to limit their supply of new coins thus causing artificial deficiency and preparing the market for supply shortening in the future. I think it’s a righteous and logical policy required to painlessly switch to the third bitcoin decade.

Second, yuan deprecation kindles the interest for cryptocurrencies in Chinese traders, so we may see an extremely high demand at Chinese exchanges. Buying bitcoin at domestic exchanges like OKCoin for yuans and selling it at crypto-fiat platforms like Bitfinex or BTC-e is the safest way to move funds away from China. It also explains the exaggerated inter-exchange spread between the aforementioned platforms.

Thus, those two factors make the price surge is well-expected and predictable in short-term.

FL: Should we expect retrograde motion in short term? Why?

Kir Kelevra: Certainly, we should expect bitcoin to keep on retreating until the halving on July 11. Profit taking by in-day traders will depend on the level of the basic asset’s over-buying rate. So, there can be minor retreats for the entire period preceding the halving, while short-term but long downward candles are possible even over the course of a day. What we certainly should not expect is consolidation of the market at some limit exchange rate. High volatility now is caused by external influences, informational fuss and avalanche-like growth of the number of cryptotraders.

Don’t forget that this cryptocurrency famine will be somewhat quenched after the auction for the bitcoins confiscated from a Silk Road co-founder on June 20. Nearly instantaneous injection of 24,618 BTC on the market will most likely result in a short-term dumping. However, keeping in mind the exaggerated mid-day turnover and excessive volatility, the auction may go very smoothly in terms of exchange rate correction.

FL: While most altcoins go down, ETH keeps on calmly growing against bitcoin, and, consequently, against USD. Another surprise is The DAO’s tokens growing. Why does it happen that way? Don’t other altcoins have any trust?

Kir Kelevra: Remember that it’s bitcoin that is the basic asset for cryptocurrency trading. It’s a mother-asset of a kind. Some altcoins have their USD value from double converting via bitcoin. Bitcoin occupies nearly 80% of the entire USD capitalization market, so the growth of USD value of the dominating asset would have a positive effect on fiat value of altcoins. Notably, ETH and DAO are traded for USD/Euro/Yuan at many exchanges, however, it’s a mere drop in the ocean compared to their trading against bitcoin. Most commonly, traders use ETH/USD and DAO/USD to run speculative operations on inter-exchange arbitration.

The market demonstrates the obvious correlation between BTC and altcoins: when the mother asset grows against USD, other assets cheapen against bitcoin. It happens because the traders couldn’t completely switch to crypto/crypto perception and continue assessing all their profits and losses in USD, which is a game changer for crowd behavior strategy. When bitcoin gains, say, 20%, a trader with ETH on their hands would incline to have the ‘growing’ asset asap without even realizing that ETH has gained the same amount without any fuss, as the price against bitcoin remained the same. Red days in cryptotrading originate from withdrawal of liquidity to the benefit of the growing bitcoin. However, the entire market cap doesn’t grow, it only involves value flowing from one cryptocurrency to another.

A powerful cryptocurrency like Ethereum, which is the most capitalized altcoin, has sufficient background not to deprecate but consolidate while bitcoin exchange rate grows. The DAO’s appreciation is purely speculative. Speaking about substantial growth of The DAO’s tokens isn’t correct at all. The charts are almost identical.

The charts were taken from Poloniex.com

Please note that The DAO can’t cost more than one thousandth of an Ether, but it’s another issue of cryptoassets’ face value.

FL: But still, maybe you could lift the veil a bit? What justifies this view on The DAO?

Kir Kelevra: There’s no mystery here. DAO is an Ethereum token. In this case, the tokens act as a title to manipulate and own ETH coins at The DAO, which cannot add ay value to the token, apart from that speculative. Over the course of The DAO’s ICO one could buy a token for a respective amount of ETH, and the exchange rate was steady, as far as I recall. Furthermore, such derivatives only bring mess to cryptoexchanges. Even if you divide ETH price by 100, the DAO’s price will be lower, even though it had to be the same. So, what appreciation are we talking about? What are the DAO tokens, if not a speculative 15% package of Ethereum accumulated on the same platform, or, most likely, in the same hands? This package has holes in it. However, the DAO is a great and unique proof-of-concept.

FL: What’s the bottomline for the cryptocurrency market situation? What else should we expect from altcoins?

Kir Kelevra: I keep on repeating: the more crises there are across fiat markets, the more nation states aspire to keep their currencies within the country, the more regulation, control, and stimulation are applied to traditional markets, the more interesting the cryptocurrency market becomes. Bitcoin may become the greatest gateway for yuan to escape the Chinese iron curtain. That’s why crypto-finance technologies are developed that much in Asia Pacific. I believe, China will keep on playing the first fiddle in cryptocurrency for a while, however, the very idea of cryptocurrency implies erasing borders between nations. In mid-term, I expect all ‘worthy’ altcoins to grow as overall cryptocurrency market cap increases. Even if some investment in a cryptoasset is lossy at a moment, remember you deal with a deflation model while calculating the profit for inflation. Trade reasonably and calmly, and use only those assets you may afford to lose. And remember: panic and excitement are the nemesis of any trader and investor.

Interviewed by Eugene Muratov