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Why Bitcoin's Price Has Leapt 64% Since April

(@garrickhileman) | Published on May 28, 2014 at 10:33 BST

Bitcoin’s price has been on a roll of late.

The CoinDesk Bitcoin Price Index (BPI) recently crossed back above $590 on the 27th of May, representing a 64% gain from 10th April when the price was as low as $360.

Much of this dramatic price increase has come in just the last few days. For approximately a one-month period prior to 19th May, bitcoin was trading in a relatively tight band around the $450 level. Then, on that date, the price began to steadily ratchet upwards (see Figure 1).

Figure 1: CoinDesk Bitcoin Price Index, 25th April – 26th May 2014

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Source: CoinDesk Bitcoin Price Index

Shifting momentum

The price of bitcoin may have also crossed an important technical threshold.

Bitcoin has reversed trading below its 50-day moving price average for the first time since early February (Figure 2).

Investors will often look to breaks above and below various moving average calculations as an important directional signal about where prices may be headed.

Figure 2: Bitcoin 50-day moving average and daily price, Jan – May 2014

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Source: CoinDesk Bitcoin Price Index

The clear break above the 50-day moving average is perhaps a bullish technical indicator of where bitcoin’s price may be trading in the near-term.

Volume trends

The recent price increase has been accompanied by a significant increase in USD trading volume as can be seen in Figure 3.

Figure 3: Bitcoin USD Price and Trading Volume, Feb – May 2014

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Source: CoinDesk Bitcoin Price Index, BitcoinAverage

From the 1st-18th May, there were approximately 16,000 USD-denominated bitcoins traded on average each day on exchanges. From the 19th-26th May, that figure more than doubled to over 41,000 bitcoins traded on average per day.[1]

Recent USD volumes, however, have not reached the levels of late March to early April when news began spreading of a further crackdown by Chinese authorities on the ability of bitcoin exchanges to interface with Chinese banks.

Why is bitcoin’s price rising?

Unlike other significant price moves in the past there is no obvious event which can be pinpointed to account for the recent price increase.

A rise in the number of bitcoin transactions, which would perhaps indicate greater commercial use and demand for bitcoin, could explain a bitcoin price increase.

However, the use of bitcoin as measured by total bitcoin transactions has remained relatively steady (Figure 4).

Figure 4: Daily bitcoin transactions, 26 April – 26 May 2014

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Rather a combination of events may explain recent price trends.

China stabilizes, eBay teases, BitPay raises

In spite of the further crackdown by Chinese authorities, the bitcoin exchanges which are located in China have continued trading and not been forced to relocate operations as was previously feared.

In fact, the evidence from recent trading volumes at CoinDesk CNY Bitcoin Price Index component exchange BTC China suggests trading volume may be picking up in China once again (Figure 5). 

Figure 5: BTC China trading volume (units), Mar – May 2014

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Source: BitcoinAverage

Other possible explanations for the rise in the price of bitcoin include mention by eBay CEO that the online marketplace is "actively considering" integrating bitcoin into its payment system.

As discussed in the CoinDesk State of Bitcoin report, a move by a major retailer such as eBay to adopt bitcoin could be a major catalyst for further use and demand for bitcoin, which in turn should drive the price higher.

Also of note was the recent record-setting $30m venture round by bitcoin payment processor BitPay.

The investment round surpassed the previous largest bitcoin investment round of $25m for Coinbase and valued BitPay at a reported $160m. The round was a vote of confidence from venture capitalists who continue to like what they see in the bitcoin economy’s growth prospects.

What other reasons explain the recent price increase? Share your thoughts in the comments below.

[1] Actual bitcoin USD-denominated volume is likely underrepresented by these figures from BitcoinAverage as they do not include all USD exchanges. For example, LakeBTC has recently been reporting significant USD volume, but is excluded from BitcoinAverage's calculations.

Chart image via Shutterstock

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