Markets Weekly is a weekly column analyzing price movements in the global digital currency markets. This piece covers the period from 11th to 18th November.
The price of bitcoin surpassed $750 this week as it continued to near its 2016 high set back in June.
The digital currency rose to as much as $752.04 on 17th November, before falling back, according to CoinDesk USD Bitcoin Price Index (BPI) data. Bitcoin prices then proceeded to fluctuate over the course of the week, surpassing $750 multiple times, but failing to build support above this level.
At the time of report, bitcoin had dipped once again, trading at roughly $745, but even after this decline, bitcoin was trading more than 4% higher for the week.
Concerns about further devaluation of the yuan, a decree made by the Indian government to take certain bills out of circulation, and sustained uncertainty about the outcome of a Donald Trump presidency all affected the digital currency.
Petar Zivkovski, director of operations for leveraged bitcoin trading platform Whaleclub, summed up the impact of the Chinese developments nicely.
"In the wake of an ever-devaluing yuan, Chinese residents are seeing their yuan-based savings evaporate based on the whim of a higher authority, the Chinese government," he told CoinDesk, adding:
"What better way to protect against this than invest in bitcoin, the ultimate government-free currency?"
Tim Enneking, chairman of cryptocurrency manager EAM, weighed in on how the Indian government's decision to phase out the two largest rupee bills is also providing bitcoin with tailwinds.
Prime Minister Narendra Modi announced 8th November that the 500 and 1,000 rupee notes would be withdrawn from circulation, a move that created long lines of customers looking to exchange their bills.
"Lots of Indians are now buying hard assets: gold, diamonds, watches – and bitcoin," said Enneking.
This market activity could provide sustained support for bitcoin prices, as Enneking stressed that transitioning to the new bills will take some time.
The Trump effect
While market observers are pointing to decisions made by the governments of China and India as driving bitcoin price action, no analysis would be complete without considering the potential impact of a Trump presidency.
His surprise victory in the US election flew in the face of predictions that came from all corners, including political analysts and pollsters.
Zivkovski spoke to how this unexpected event could impact both bitcoin and the economy going forward.
"Many consider bitcoin in this case to be a hedge against the fiat-economic turmoil they believe will occur during his presidency," he said.
But while traders were largely positive, the price saw notable fluctuations during the week, as bitcoin even surged $30 in one hour at one point. The frenetic nature of the digital currency was illustrated by the BitMEX's 30-day Historical Volatility Index, which reached as much as 38.54% and averaged 36.43% for the week.
In contrast, the index did not surpass 35% during any session during the prior seven-day period, additional BitMEX figures reveal.
While bitcoin notched some solid gains this week, Enneking wondered how long these elevated price levels would last.
"The real question is are we going to break through $700 going south anytime soon," he said. "I think we will fall back, but I am not sure how much."
Zcash struggles to find footing
Bitcoin was certainly not the only digital currency that experienced notable fluctuations this week, as privacy-oriented cryptocurrency Zcash suffered even more intense gyrations.
Zcash, which leverages zero-knowledge proofs to ensure anonymity, has been struggling to find a place in the global markets after enjoying a highly publicized release on 28th October that saw its value surge to more than $2m.
However, while the digital currency managed to generate headlines by harnessing bleeding-edge cryptography, its price has plummeted over the last few weeks. After opening at $225.74 on 11th November, ZEC tokens had fallen 69% to $70.60 at the time of report, Poloniex figures reveal.
One reason for the drop is that the currency's supply has been steadily rising since the launch, surging to more than 50,000, according to CoinMarketCap data.
"As Zcash supply continues to increase, and, in parallel, demand continues to decrease (as the initial hype fades and Zcash fails to gain major traction or a large-market use case), basic economics dictate that the medium-term trend for Zcash is a decline," Zivkovski told CoinDesk.
While the digital currency may appear to be encountering some challenges, it could simply be that ZEC tokens were pushed to highly inflated prices and simply need to come back down to a more realistic level.
Cryptocurrency trader Jacob Eliosoff pointed out the sharp difference between the price of ZEC on Poloniex and the price of BitMEX futures.
At the time of report, the digital currency was trading at 0.099 XBT on the former exchange, more than 70% higher than the price on the latter.
Eliosoff told CoinDesk that until the two have similar prices, he believes Zcash will simply be a bad buy.
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