The virtual currency price has been soaring over the last months and the trend strongly accelerated over the last trading sessions. The bitcoin is up 140% from its January 2015 lows and even registered an impressive 91% positive performance since late August (in just 3 months). The virtual currency that currently trades at 380 US Dollars is still far from its historical highs of late 2013 when the bitcoin reached the 1’150 USD level. Nevertheless, it seems like a new uptrend is building and that it could bring investors’ appetite back into the virtual currency. This uptrend is supported by both technical and fundamental catalysts that we will try to explain on the below article.
Reasons behind the strength of the virtual currency
Over the last months, several positive news and economic forces helped the virtual currency reach its highest level in 11 months. First of all, many informed and successful investors as well as Wall Street banks just announced their fresh investments in the “blockchain”, the technology supporting the bitcoin payment system. From former Treasury Secretary Larry summers to the new champions of the “FinTech” (Kiva, Ripple, Wealthfront…) and also including major Wall Street institutions such as JPMorgan and Citigroup, they all invested the bitcoin technology and helped bring confidence in the virtual currency. As a reminder, the blockchain is a critical part of the bitcoin peer-to-peer payment system. It enables faster, safer and cheaper payments using the virtual currency.
Last week, the virtual currency also received the unexpected help of the highest court in the European Union. The European Court of Justice announced that bitcoin transactions “will be exempt from VAT under the provision concerning transactions relating to currency, bank notes and coins used as legal tender.” The virtual currency will thus get rid of one of disadvantages to other currencies in Europe. The backing and recognition from such a high European institution is also likely to bring further confidence in the virtual currency for European investors.
Another theory developed by controversial website Zerohedge is that the recent strength of the virtual currency is mainly driven by Chinese investors. Indeed, 2 months ago the when Chinese authorities announced an unexpected currency devaluation, they also had to enforce a series of capital controls in order to prevent the exit of hot (and not so hot) money from China’s economy. Zerohedge believes that the virtual currency may represent the last resort for Chinese investors to move their capital away from the Chinese banking system and avoid further devaluation of their currency.
Bitcoin technical indicators are starting to fade
The technical indicators behind the virtual currency are starting to fade. We recommended to buy bitcoin binary options over the last weeks ahead of further easing announcements from Central Banks and the strategy delivered. After a 90% performance in 3 months, momentum indicators (RSI and MACD) are strongly overbought and we believe a consolidation will be healthy for the virtual currency. The first supports lie at 311 USD and 295 USD were we could consider re-entering bitcoin.
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