The world’s largest cryptocurrency, Bitcoin, has been experiencing a phenomenal rally this year which had seen the price of the coin rise to new heights. The price rise has been influenced by a variety of factors including some of the world’s biggest companies taking interest in cryptocurrency. There also has been a general feeling that there is high institutional demand for Bitcoin and this demand has outpaced retail demand.
Over the first half of the year, the price of Bitcoin has risen staggering heights. As of December 2018, Bitcoin was trading around $3,500 per Bitcoin. This price has risen by over 200% by the middle of the year and Bitcoin has reached prices of up to $14,000 at some point. This dramatic price rise has generated renewed interest in the digital asset and traders who had previously abandoned Bitcoin trading have made a return to trading platforms.
CZ gives warning about institutional demand of Bitcoin
Chief Executive Officer of Binance, Changpeng Zhao, has warned that the latest rally of the cryptocurrency may not be driven by institutional demand as people are thinking. The CEO who is popularly known as CZ in the crypto industry also added that the extreme volatility that is being currently experienced by Bitcoin is likely to get worse.
In the explanation of his sentiments, CZ said that institutions have not grown fast enough to be the cause of the rally. What the industry has witnessed is a pickup in both places and the number of institutions in operation in the crypto industry has not increased that much as of 2019. Binance is the world’s largest Bitcoin and cryptocurrency exchange by volume and CZ said that retail investors still account for the higher percentage of trades on Binance with 60%. This is the same percentage as last year although both have increased.
The use of margin trading
CZ expressed that by the end of the year, the majority of people engaging in crypto trading will be using margin trading in one form or another. Margin trading is when traders are allowed to borrow against their deposits on an exchange. Binance allows traders to borrow up to three times their deposits while rivals such as Bitfinex allows traders to borrow up to 100 times the deposits one has.
Margin trading may also be a factor that has driven the price of Bitcoin upwards. It gives traders a larger pot of funds from which they are able to speculate on the cryptocurrency and this results in a price rise. If the majority of people use margin trading, CZ says that there is likely to be an increase in trading volumes and Bitcoin may experience even higher volatility.
2017 bull run vs current bull run
In 2017, Bitcoin experienced a major bull run which saw the cryptocurrency move from trading at $1,000 to trading at almost $20,000 in a space of less than 12 months. The 2017 bull run was driven by retail investors and the current rally is being viewed as more mature as compared to that of 2017.
The perception of the current rally being more mature stems from crypto interest from companies such as Facebook and Apple. There also has been the adoption of cryptocurrency through Bakkt, a Bitcoin and cryptocurrency exchanges owned by the New York stock exchange owners. These differences with 2017 may make the current bull run more mature and more sustainable.