The price of ethereum rallied this week following Tax Day in the United States. For weeks, market commentators had speculated that individuals were selling cryptocurrencies to cover tax debt accumulated during a blowout 2017.
With Tax Day now over, it seems the markets are readying for a comeback.
Given the recent rally in ethereum, bitcoin is relatively undervalued at this point.
Bitcoin is the “gateway crypto” to other digital currencies (like zcash, dash and ripple). These are bought and sold in pairs with bitcoin.
What this means is that when you buy one of these currencies, you’re simultaneously selling your bitcoin.
This is a good thing. Why? Because if the price of these other currencies goes up, more people will jump on the bandwagon, and they’ll have to buy bitcoin first in order to do it.
The second part is a corollary of the first: Despite all the sellers of bitcoin, its price has remained steady. This suggests that new investors are entering the market and buying bitcoin with dollars or euros, while people already invested in bitcoin are either holding or using it to buy other digital currencies.
Once again, this is a good thing. Although bitcoin might be out of fashion for the time being, the price is still relatively stable — which is important for establishing trust among institutional investors.
Nobody likes to make an investment and see 20% or more disappear overnight.
Most average investors aren’t playing to win; they’re playing not to lose. They don’t like big drops. And most of them don’t end up beating the market.
Institutional investors will wait for sustained periods of stability before they’ll buy into bitcoin. We’re not going to wait that long. By then, all the big profits will be gone.
Cryptocurrencies are only valuable if they are easily tradable. For large investors, this is critical as they need to be able to make big investments without impacting the market.
Bitcoin’s resilience became more apparent on Tuesday when two mysterious traders each sold $50 million in bitcoin within 24 hours of each other. Although this massive supply increase temporarily caused the price of bitcoin to tank almost 5%, it had nearly recovered by the next day.
This indicates the markets are becoming more resilient and able to absorb large trades as investors grow to trust bitcoin.
Since Sunday, the Bitcoin Dominance Index — a measure of how much bitcoin is worth compared to the combined value of all other digital currencies — sank from 42% to nearly 38%. This suggests that bitcoin is falling out of favor in cryptocurrency markets, and may be undervalued. This is good news for Bitcoin, because it creates a buying opportunity. Now would be a good time to buy bitcoin for anyone looking to add to their position or for anyone just getting started.
As the longest-existing and most commonly recognized cryptocurrency, I believe bitcoin represents a long-term asset that will likely benefit from institutional investment in the coming years.