Bitcoin prices experienced moderate volatility during the week ending 8th July as market participants took action ahead of the upcoming halving of bitcoin rewards, scheduled to happen on or around 9th July.
As the decline in new bitcoins minted daily is programmed into the network, the broader bitcoin community has known about this event for years, and many are eagerly watching or even wagering on the outcome. Perhaps because of this, market momentum coming into the week was high.
After opening at $672.48 on 1st July, bitcoin prices quickly surpassed $700, breaching this level on 2nd July and reaching a weekly high of $704.42 at 12:00 UTC on 3rd July, according to CoinDesk’s USD Bitcoin Price Index (BPI).
This rally represented "a natural market response as eager buyers saw an opportunity to buy bitcoin on the cheap before the halving," explained Peter Zivkovski, director of operations for bitcoin trading platform Whaleclub.
This situation "fueled massively bullish market sentiment," a statement which he backed up using Whaleclub data. According to these figures, total position volume was 92% and 88% long on 1st and 2nd July, respectively.
In spite of this strong sentiment, bitcoin failed to stay above $700 for long, plunging to a low of $648.05 at 16:45 UTC on 3rd July, additional BPI data reveals.
The digital currency was unable to stay at $700 because once it reached this level, "sellers come out of the woodwork" to find buyers, according to investor and entrepreneur Vinny Lingham.
Zivkovski provided similar insight into the digital currency’s decline, stating that its price "failed to make new highs above $700 despite multiple attempts," a development that he said drove prices down and cleared "weakly held and over leveraged longs."
The digital currency managed to recover from this sharp decline, rising to a high of $679.92 at 01:45 UTC on 7th July, before plunging roughly 10% to a low of $611.26 by 21:30 UTC that same day.
When explaining this sharp decline, market experts spoke to both uncertainty and profit taking ahead of the halving. For example, Lingham emphasized that there are a great deal of unknowns surrounding this event, and that "no one really knows what the implications are going to be."
Arthur Hayes, co-founder and CEO of bitcoin leverage trading platform BitMEX, stated that amid this uncertainty, many market participants are choosing to take profits instead of leaving their bitcoin at risk.
Zivkovski told CoinDesk that leading up to the correction, Whaleclub registered a long-short ratio of 22-to-1, its highest on record, meaning that with all these bullish positions up, there was no buying power left.
"No new money entered the system, and following a few days of low volume and failure to reach new highs, low entry buyers triggered a large sell off by taking profit," he stated.
While the halving event has been generating substantial visibility, ether, the digital currency of platform ethereum, has been experiencing its own major events.
Ether prices repeatedly fell below $10 during the week, a sharp contrast to the all-time high of $21 the digital currency reached in mid-June, Poloniex figures reveal. In addition, the digital currency declined 18.5% week-over-week.
Ether has been suffering this consistent weakness as the ether community debated whether to implement a hard fork in a bid to bail out investors of the failed distributed organization The DAO.
Since this problem appeared in June, the ether community has been considering how to address the situation. Originally, many advocated a soft fork to solve the problem, but it has been since revealed that harnessing this approach would leave The DAO open to further attacks.
Now, many members of the Ethereum community are pushing for developers to implement a hard fork for The DAO, which would effectively kill the distributed organization. The situation will likely be a source of continued volatility in the coming weeks as the community seeks a conclusion.
Charles L. Bovaird II is a financial writer and consultant with strong knowledge of securities markets and investing concepts.
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