Bitcoin prices experienced some sharp fluctuations in October, climbing roughly 40% in a single day amid weak market sentiment and lackluster trading volume.
The digital currency started the month around $8,400, then dropped below $7,800 on October 6, CoinDesk data shows.
The cryptocurrency then recovered, rising to nearly $8,800 on October 11, before declining to an intra-month low of $7,307.39 on October 23, additional CoinDesk figures reveal.
A few days later, bitcoin prices surged, rising approximately 40% to more than $10,300 on October 25.
Over the next several days, the digital currency surrendered some of these gains, finishing the month at $9,070.56, a 7.8% gain for the month.
As a result, bitcoin volatility returned to its “normal” state “throughout October,” said David Martin, chief investment officer of Blockforce Capital.
The digital currency’s price fluctuations took place during a month where Facebook CEO Mark Zuckerberg’s Libra testified before Congress and Xi Jinping, president of the People’s Republic of China, made optimistic comments about blockchain technology.
“The announcement from Xi Jinping that China should ‘seize the opportunity’ of blockchain was a watershed moment for the industry,” said Mati Greenspan, senior analyst for social trading platform eToro.
“It has put the issue of payments at the forefront of the global trade war and has served as a huge endorsement for the entire crypto industry,” he added.
Further, the announcement made by China’s head of state took place the same day that bitcoin spiked roughly 40%.
While these comments may have provoked the cryptocurrency’s rally, analysts cited other factors, including a short squeeze and FOMO (fear of missing out) as helping amplify the digital asset’s gains.
Some emphasized the lackluster trading activity, and how it made bitcoin markets vulnerable to the influence of large traders, also known as whales.
Jeff Dorman, chief investment officer of asset manager Arca, weighed in on this matter.
“Overall, October’s price action had very little to do with any external macro factors, and instead, was entirely based on crypto-specific positioning and exchange tomfoolery,” he stated.
“With volumes low, and little new interest flowing into crypto from the outside world, it was very easy for large players in crypto to push the market around,” added Dorman.
“These outsized effects will only dissipate when new players enter the market and dilute the impact of existing large players.”
The analyst emphasized that bitcoin’s massive price movement on October 25 took place shortly after some derivatives contracts for the digital currency expired, a development that caught “the market offsides for those who didn’t have time to reposition.”
Joshua Frank, cofounder of cryptocurrency analytics platform TheTIE.io, stated that sentiment was not responsible for bitcoin’s price gains in October, citing data provided by his company.
“The massive increase in Bitcoin’s price at the end of October was not led by positive market sentiment,” he claimed.
“Overall sentiment and tweet volume within the market were both relatively flat prior to the 40% intra-day increase in price,” added Frank.
“While daily tweet volume saw a large spike after the massive run-up, conversations have once again slowed on the coin,” he stated.
“BTC’s 30 day average tweet volume is basically flat since September, and down significantly since its year-to-date high in July.”
Martin emphasized that bitcoin’s price volatility picked up this month, stating that:
“After hitting a five and a half month low in late September, bitcoin has returned to its normal, volatile state throughout October based on macroeconomic events toward the month-end like the Facebook congressional hearing and the significant backing of blockchain by China’s President Xi.”
“The leading cryptocurrency closed the month at a two and a half month high, with its 30-day volatility at 73% on October 31st,” stated Martin, citing data provided by Blockforce Capital and Digital Assets Data.
“The 30-day volatility closed the month just 10% below its long term average volatility since 2014 of 82%,” he added.
The chart below graphs bitcoin’s price against its 30-day and 60-day volatility:
U.S. Recession Concerns
Another factor that may have helped bolster bitcoin prices during the month is concerns that the world’s largest economy will soon fall into recession.
Worries about such developments are “placing upward pressure on the price of bitcoin, since it is seen as a safe haven during current times of turmoil and instability,” said Michael Conn, founder and managing partner of financial services firm Quail Creek Ventures.
He emphasized that there is “concern for the broad US economy, from the Fed having to step in every night in a major way in the Repo market, to dealing with concern over the trade war with China etc., to the impeachment ment process etc.”
These developments cause “turmoil,” which is helping place upward pressure on bitcoin prices.
The U.S. economy has been expanding for more than 10 years, so when it does finally tip into recession, the resulting weakness in economic conditions could easily fuel further gains for the world’s most prominent digital currency.