Markets Weekly is a column analyzing price movements in the global digital currency markets, and the technology’s use case as an asset class.
The price of bitcoin broke past $450 this week, as markets rallied in response to perceived progress surrounding the network’s block capacity dilemma.
The price breakout, which took place as the digital currency surged more than 6% in the seven days through 12:00 UTC on 22nd April, ended the pattern of the last several weeks, when bitcoin fluctuated largely within a tight range.
“Traders have been watching the psychological price barrier of $450 for a long time,” Joe Lee, founder of bitcoin derivatives trading platform Magnr, told CoinDesk.
“Now that was broken earlier in the week by every major exchange, eyes are on the bullish trend continuing with $480 and $500 as target prices for the three-to-six month timeframe.”
Volume still modest
Interestingly enough, bitcoin’s sharp rise took place amid more modest weekly trading volumes.
Market participants traded 12.96m BTC during the seven days through 7:12 EST on 22nd April, according to Bitcoinity data. As in recent weeks, OKCoin and Huobi were responsible for 49.46% and 44.6% of these transactions, respectively.
By comparison, the ether markets experienced far less volatility, ending the week close to where it started.
The token on the Ethereum blockchain network experienced 24-hour trading volume of $13.6m at roughly 12:00 UTC on 15th April, which dipped slightly to $13.4m by approximately 12:00 UTC on 22nd April.
These figures fell far short of this digital currency’s transaction activity over the last month, as 24-hour trading volume reached $22m on 24 March and $15m on 1st April.
SegWit boosts outlook
The week’s most notable development was the release of the code for Segregated Witness (SegWit), an upgrade to the bitcoin protocol that will allow blocks in the blockchain to contain more transactions.
This update, which Bitcoin core developer Pieter Wuille published 19th April, is expected to make bitcoin blocks smaller by storing the part of every transaction containing a digital signature differently, when implemented.
If the bitcoin community adopts SegWit, it should significantly increase block capacity, providing a stopgap solution, observers say, to what could be a continued issue for the network should it want to accommodate more users without additional top-level networks.
But, bitcoin prices will not surge until the broader community has adopted a hard fork solution, Tim Enneking, chairman of Crypto Currency Fund, a digital currency-focused hedge fund, told CoinDesk.
Even though bitcoin developers have not yet moved forward with a hard fork solution to what some consider its scaling issues, many experts emphasized that SegWit’s release has had a positive impact on both the market and community for the digital currency.
Petar Zivkovski, director of operations at Whaleclub, told CoinDesk about how trader sentiment changed after bitcoin’s sharp rise pushed it above $440 on 20th April.
“Trader sentiment at Whaleclub prior to [today] was predominantly short,” he said on 20th April. "Now we’re observing a 2.8:1, long-to-short volume ratio. This is 80% higher than the average 2:1 recorded ratio, so we have an 80% excess in long positions (bullish sentiment). This evolution in sentiment shows that many shorts have closed in a small period of time (hence a short squeeze).”
Sentiment turns positive
While Zivkovski supplied hard data, Christopher Burniske, analyst and blockchain products lead at investment management firm ARK Invest, spoke to improving overall sentiment.
“Miners will soon be able to upgrade their software, and since it is a soft fork there is less fear, uncertainty, doubt around the process,” Burniske told CoinDesk, adding:
“In my eyes, this has collectively allowed a big sigh of relief for bitcoin participants.”
Lee, in turn, spoke to how SegWit’s release provides a blow to the arguments used by bitcoin skeptics.
“I believe that we are well on our way towards the plateau of productivity as the general public come to terms with the fact that bitcoin has not died despite repeated public media stunts,” he told CoinDesk.
Charles L. Bovaird II is a financial writer and consultant with strong knowledge of securities markets and investing concepts.