Bitcoin’s bullish run in 2019 has hit new highs in recent days as the leading cryptocurrency smashed through resistance levels on its way to reaching highs close to $7,500 within the past 24 hours. It also experienced its highest-ever one-day trading volume, which exceeded $29 billion on May 11. This latest surge has come at a time when major exchanges are facing uncertain times, with an ongoing New York Attorney General investigation into Tether and the fallout of Binance’s recent hack leading to withdrawals being suspended.
The recent turmoil surrounding Tether and Bitfinex saw Bitcoin trading at a premium on platforms that use Tether as an exchange mechanism, with Bitfinex experiencing premiums of as much as $350 compared to other exchanges. However, this exchange disparity has lessened as Bitcoin has pushed on above $7,000 in recent days. At the time of writing, Bitcoin’s price is at $7,074 on Bitfinex, $7,051 on Coinbase Pro, and $7,031 on Binance.
One theory behind the recent price increase is that traders are looking to offload Tether and move it into assets with more perceived future value. Many users have reported an inability to withdraw funds from Bitfinex in recent months, with Reddit user /u/sph44 compiling a long list of posts related to these issues on the /r/bitfinex subreddit. Binance has shut down withdrawals from its platform for one week following the discovery of a 7,000 BTC hack from its Bitcoin hot wallet, compounding the difficulty traders are facing in moving funds around. And Tether is currently trading at $0.99, with price movements below $1 usually regarded as indicating that traders are moving funds from Tether into other cryptocurrencies.
But as happens with every dramatic price movement within the cryptocurrency space, there are many competing theories and many more who claim the market is simply irrational and that no theory can adequately explain its mysterious run-ups and collapses.
What are cryptocurrency figures saying about the recent price increase?
Cryptocurrency figures have been divided on how the ongoing situations with Bitfinex/Tether, the fallout of Binance’s 7000 BTC hack, and the surging Bitcoin price are connected. Lawyer and stalwart Bitcoin bear Preston Byrne has been a leading voice of caution on the recent price increase, publishing a blog post on May 3 that compares Bitcoin’s current rally to those which followed previous banking and solvency issues affecting major exchanges. Byrne notes that the current surge has almost perfectly coincided with the launch of the New York investigation into Tether and Bitfinex, just as the 2017 bull run began with Bitfinex being cut off by US banking giant Wells Fargo. Byrne has been a long-term critic of Bitcoin and other cryptocurrencies, writing his September 2017 ‘Bear Case for Crypto’ that:
“the forward-looking statements used to sell Bitcoin are so silly, so off the wall, and so out of proportion to its terrible UX and 3 transaction-per-second transaction capacity that, if a CEO of a listed company made statements about his business like the ones we often see in relation to BTC, he would face prompt sanction (assuming of course that he didn’t immediately die from embarrassment)”
Marcus Swanepoel, the CEO of London-based cryptocurrency exchange and custodian service Luno, responded to claims surrounding the connection between Tether’s legal trouble and Bitcoin’s surging price in a recent interview with Coin Geek. Swanepoel notes that the issues surrounding Tether that are now under investigation have been known by those within the crypto space for years, and that “if it’s in the news, it’s in the price.” Swanepoel goes on to argue that current market momentum should mask most of the market impact of the Tether investigation, with “many other (more) trusted sources of liquidity” available.
Ethereum co-founder Joseph Lubin also thinks other sources of liquidity will cushion any negative impact of the Tether situation on cryptocurrency markets. Speaking with Bloomberg during the Fluidity Summit in New York last week, Lubin noted that “Tether is somewhat important to our ecosystem because it’s used by different institutions to effect more fluid trading,” but that there are many other stable coins which are likely to gain traction as what he describes as the “really big mess” surrounding Tether moves toward resolution.
In an article provocatively titled “Bitcoin Traders Don’t Give a F**k About Tether’s Black Swan Scandal,” Sal Miah of CCN argues that having survived the recent bear market, crypto traders are completely unmoved by the legal drama surrounding Tether. The article includes quotes from many traders who have expressed this sentiment on Twitter and other social media platforms.
Fear inducing headline:
“Only 74% of #Tether is backed by cash and equivalents😱”
Your bank would collapse if everyone tried to withdraw, they have nowhere near 74% liquidity.
Calm down people. Buy Bitcoin.
— Bitcoin Birch 👨💻 (@BitcoinBirch) April 30, 2019
History seems to suggest this view may be the correct one. Many doubted Tether’s claims to be backed 1:1 by US Dollars long before this recently became official. As Byrne points out, Tether’s troubles were already the talk of the crypto scene when the last raging bull market began in 2017. And while a study from the University of Texas blamed much of that bull run’s price increase on Tether-based market manipulation, this seems to have had minimal impact on the market sentiment regarding Bitcoin and other cryptocurrencies.
What happens next?
It will be a long time before the legal issues involving Tether and Bitfinex are resolved, with the New York investigation centering on an alleged attempt to paper over $850 million lost in a 2016 hack by issuing new US Dollar Tether without any the advertised 1:1 US Dollar backing. In the meantime, Bitfinex is pressing ahead with a $1 billion token sale that was announced just days before the New York Attorney General’s investigation became public. The $1 billion crowdsale for its LEO token would generate more than enough funds to cover the purported missing $850 million. Whether this is a desperate attempt to plug holes in a sinking ship or a happy coincidence that could resolve most of its issues remains to be seen.
Some predict that when Binance withdrawals reopen, the sustainability of Bitcoin’s recent price movement will become clearer. The 2017 bull run powered through countless negative headlines, with potentially catastrophic news such as the banning of ICOs in China seeming to only push the market higher. 2019’s emerging bull run has begun in the same seemingly counter-intuitive way. If history is any indicator, no amount of FUD and negativity will slow down the bull’s ascent at this point in the cycle.