5 possible reasons to explain the latest Bitcoin rally

At the time this post was written, Bitcoin (BTC) was valued at just over $8,600. The market was up more than 8% for the day, following several days of strong numbers.

Now it seems like everyone and his brother is predicting a remarkable bull market for BTC throughout 2020. So what's up? Why are people suddenly jumping on the Bitcoin train?

Bitcoin has a well-earned reputation for being the cryptocurrency that all others follow. So it is significant when large numbers of analysts are predicting either a significant bull or bear market. When the bulls are in town, just about every other coin benefits. They all tend to lose when the bears come to visit. Still, that does not explain why so many people are suddenly bullish on Bitcoin. For that, we have to dig a little bit deeper.

There isn't a single reason to explain Bitcoin's most recent rally. In fact, we count at least five possible reasons. Each of them is discussed in more detail below. If you are new to the whole Bitcoin thing, pay attention to what happens over the next several weeks. It could be that this latest rally will be sustained through the end of the year. But it is equally likely that it will fizzle out at some point.

1. The coming Bitcoin Halvening

Perhaps the most commonly cited reason for Bitcoin's sudden strong performance is the coming halvening, or halving. We have explained halving in previous posts, so there will not be a tremendous amount of detail here. But we will go through the basics for the simple fact that halving is important.

At some point in the summer of 2020, the reward paid to coin miners for completing blocks will be cut in half. This is known as halving. Halving was built into Bitcoin's code for two reasons. First, it slows down the speed at which new coins are released into circulation. Second, it also helps to prop up Bitcoin's value by making new coins more rare over time.

Just about every expert believes that halving will have a positive impact on BTC prices. It's supposed to by design. Rewarding miners half of what they earn now but still requiring them to do the same amount of work means fewer coins released. New coins become rarer, selling them on the open market becomes more lucrative, and prices go up as a result.

Exactly how much upward pressure halving will put on BTC pricing is unknown. Indeed, there is no way to know until it actually happens. Interestingly enough, we do not even know exactly when halving will occur. We just know that it is likely to be sometime in the summer.

2. Persistent HODLing among "whales"

Next up is an investment strategy known as holding on for dear life (HODL). It is a strategy that dictates you hold onto your coins as tightly as you can regardless of where prices go. An investor will hold on when prices fall with the expectation that things will eventually rebound on their own. He or she also holds as prices increase. Why? Because the price can always get higher.

It is possible that the vast majority of Bitcoin whales are practicing a disciplined HODL strategy until after halving occurs. They are confident in significant price increases and, as such, are reluctant to cash in any of their coins right now. Given that your typical whale is a millionaire, there is very little risk in employing an HODL a strategy right now.

If there is anything surprising here, it is the fact that the whales do not seem to be accumulating large volumes of additional coin. There could be any number of reasons for this. The most obvious reason would be a suspicion that post-halving prices, while they will go up, will not be significant enough to warrant accumulating additional coins in the $8,500 range. But again, no one really knows how far prices will climb.

3. Market manipulation

A third potential reason explaining Bitcoin's latest rally is one that makes us uncomfortable. Nonetheless, it always has to be considered. That reason is market manipulation. Despite the many controls put in place, cryptocurrency markets are still subject to manipulation of all sorts.

For example, numerous reports in 2019 proved that exchanges were artificially inflating trading volumes in order to encourage investors to buy and sell. Remember that exchanges make money on both sides of a trade. Artificially pushing volume up is a way to convince investors that a market is hot right now. That encourages them to trade.

Of course, there is also the pump and dump mentality. It could very well be that certain market forces are at play in order to increase BTC's price by encouraging people to buy. After all, cryptocurrency trading is very much a supply and demand industry. Demand rising faster than supply always results in higher prices.

Exactly who would employ pump and dump is not for us to say. All we know is that it happens. Pump and dump has been a recognized market manipulation tool for decades. In fact, it was around long before cryptocurrency was ever created.

4. Economic and geopolitical news

Yet another possible reason for Bitcoin's most recent rally are the many economic and geopolitical stories making the rounds. Economic and geopolitical news always has influence to bear on markets, both traditional and digital. There is no reason to believe that Bitcoin would not be affected by what is going on in the world today.

On the economic front, things have not been this good in most countries for a long time. At the center of it all is the U.S. economy. It is humming along with a strength that has not been seen since the mid-to-late 1980s. Inflation and unemployment are low, economic output is high, and the U.S. is slowly but surely winning its trade war with China.

All of this bodes very well for global economics. Things are looking up in most places where economic freedom exists. That means people have more money to spend and invest, making more money available for cryptocurrency investments.

There is also the UK's pending Brexit to consider. There are some who feel that the short-term impact of Brexit will put downward pressure on the UK's economy. Bitcoin is seen as an economic safe haven that investors can put their assets into until everything shakes out in Europe. Now that the UK is set to leave the EU at the end of January, all things trade will have to be renegotiated between a free UK and its world trading partners.

On the geopolitical front, there is turmoil in Iran, Iraq, Hong Kong, Chile, Bolivia, Venezuela and many other places. China is getting cozy with Russia in hopes of establishing an economic bloc (Eurasian Economic Union) capable of competing with the West. What does any of this have to do with Bitcoin? Think safe haven.

Investors are always looking for safe havens when geopolitical news looks dicey. More and more, BTC is being seen as a safe haven because it exists outside the purview of geopolitical boundaries. As such, BTC is gaining ground as a safe haven.

5. Media hype

The fifth and final reason is probably second in importance only to halving. What is it? It is media hype. The key to understanding this is knowing that mass media is an industry governed by competitive imitation. This competitive imitation is easy observed in news headlines.

We all know that media outlets compete with one another for audience. The larger an outlet's audience, the more money it commands for advertising and subscriptions. Thus, every media outlet wants to be number one. At the same time, media outlets are populated by content creators who seem to be challenged in the arena of original thought.

Because so few original thoughts are out there, content creators play a strange game of follow the leader. One media outlet will come up with a headline story that no one else has discussed. But as soon as that story hits the news wires, every other outlet competing for the same audience picks up on it. They all follow with their own stories and headlines that are strikingly similar.

We say that to say this: it only takes one or two stories talking about a Bitcoin rally to get nearly every cryptocurrency media outlet talking about the same thing. Then the subsequent rally becomes a self-fulfilling prophecy. So many media outlets talking about it encourages people to buy. When people buy, prices go up. Consistent price increases over several days constitute a rally that media outlets are only too happy to report. And so the cycle continues.

In summary, there isn't just one influence behind Bitcoin's most recent rally. There are lots of factors all coming together at just the right time to send BTC prices rising. How long will the rally last? No one knows. What we do know is that markets are cyclical. This rally will eventually peak and be followed by a retreat. Hopefully that retreat will not be too significant. But even if it is, another rally will take its place at some point down the road. That is how this all works.