After a period of decline, the price of bitcoin was recorded to increase yesterday. This happened soon after the news of PayPal’s Bitcoin integration.
The online payment company is ready to accept the digital currency for certain services for merchants.Although the increase is reassuring, it is still not high enough. The price is still very low when compared to what it was during the beginning of this year.Everyone involved in the Bitcoin community is still pondering about why the price has dropped so much in the first place. In December 2013, it was $1000 but it has dropped more than 50% since then.As no new information on the topic could be obtained, the reason can be thought to be the 2 words: asset allocation.
In simple words, as there were better options to invest in since Bitcoin’s price started lowering.Different investment options have outperformed bitcoin since June. People understand their opportunities and money flows to where it can multiply.Bitcoin holders thought about the advantages of holding on to their digital currencies but perhaps could not find many as the worth of Bitcoin continued to fall.
The attitude will remain the same until proper hedging using various derivative products occur.Since June and July, the US dollar has outperformed bitcoin significantly. As they are alternative payment methods and competing assets, the US dollar and bitcoin are thought to be negatively correlated.The US dollar has many advantages over Bitcoin. The perception of strong domestic economy is one of them. Money comes from European countries as their economies are showing signs of contracting.
The fact that, those money inflows from pound sterling, could be related to concerns about Scottish secession.If however the US dollar weakens now, it will be very good for bitcoin. Any stock market correction can lead to allocation of outflowing money from equities in other asset classes. As a result, money could flow to under-performing assets like bitcoins, hard and soft commodities, and other emerging markets.
Some people in the bitcoin community think that the Alibaba IPO is among the reasons for the digital currency’s price decline. They could see this positively too. Those who were allocated shares at $68 would have the chance to sell their shares with a 32% profit. The process is quick and the money could be invested somewhere else.A very old rule on Wall Street is highlighted by Joe Granville in his book, “New Strategy of Daily Stock Market Timing for Maximum Profit.” The rule states that stocks do not increase in price unless the demand exceeds supply.
Demand is measured in volume, and thus the volume must precede price.Usually, volume also precedes news, just like price does. If you want the downtrend to come to an end, you should monitor the volume. If there is any positive rise, accumulation has begun.In previous years, it was noted that the period starting in October witnessed increase in price. The same pattern could be repeated this year.
