The “Bitcoin Boom” continues unabated as the price recently broke above the critical $8,600 mark. The 2019 rally has lifted the world’s premier cryptocurrency from $3,689 per unit BTC on January 1, 2019 to its current level. The 100% increase has helped to drive up the prices of several other cryptocurrencies, and boosted the market capitalization of the crypto market to over $270 billion. Bitcoin’s dominance stands at approximately 56%, with a market cap of $153 billion (June 15, 2019). The whipsaw nature of the crypto market is such that these numbers can fluctuate wildly from day to day. The current uptrend is being fueled by increasingly positive news in the crypto arena.
The crypto market typically mirrors Bitcoin’s price movements. The Bitcoin bulls have helped to drive up the price of BTC by pushing it beyond $8750 in June, before a pullback to current levels. Trading activity tends to suggest that rapid price appreciation is coupled with large-scale selloffs as profit-taking ensues. Selloffs present traders with an opportunity to buy on the dip, thereby facilitating cost-effective acquisitions of Bitcoin. Trends indicate that Bitcoin tends to rise and fall sharply during periods of high volatility. The current bull run is rather unique in that Bitcoin’s trajectory has maintained consistency over several months. While price swings have occurred, these have been less dramatic than the rapid rise and fall of Bitcoin in 2017.
Italian Tax Initiatives Help to Drive Demand for Bitcoin
The Italian tax authorities are seeking to generate significant revenue streams by proposing a tax on the personal savings of citizens. The tax proposal on funds held in bank vaults is indirectly fueling a Bitcoin rally. While speculation abounds, indicators tend to suggest that attempts to impose higher taxes on people will generally be met with a shift of funds into other asset classes. Bitcoin is one such example. Aggressive trading activity has seen the price move towards the $8,500 – $9,000 level.
The Italian Deputy Prime Minister’s tax proposals have sent shockwaves through the country, but it’s not all bad news for alternative asset categories. Cryptocurrency like Bitcoin is generally viewed as a safe-haven asset when government begins imposing punitive measures on the populace. By switching savings from banks to Bitcoin, it is possible for Italians to hold on to more of their funds. But the upward pressure on Bitcoin is coming from multiple directions, notably geopolitical tensions between the US and Iran, Brexit pressures on the UK, and stress factors with China, North Korea and Russia.
Deputy PM, Matteo Salvini’s proposals to tax Italian citizens’ private savings sent shockwaves through the country. While no mention whatsoever was made of Bitcoin, the proposals were quickly picked up by the crypto community and this drove the rally. According to reports, the Italian Deputy Prime Minister learned that the country’s banks are currently holding hundreds of billions of euros in savings accounts and safety deposit boxes. These ‘hidden funds’ may be subject to taxation if the legislation passes. Salvini indicated that taxes would be lower for citizens who are forthcoming about their holdings.
Global Tensions Helping Cryptocurrency Assets
Reports recently surfaced about European markets hitting a 5-month volatility peak. The Financial Times reported on the fluctuations as volatility hit its highest peak since December 2018. The vaunted CBOE Volatility Index reflects increasingly positive sentiment for bond markets but concerns are mounting about trade relations between the US and China. This fear gauge index tends to reflect bearish sentiment among stock market traders. Back when the VIX (Volatility Index) was hovering around 36, US markets were in correction territory. Much the same is being seen now in Europe and concerns are mounting that a prolonged bear market can follow.
As always, Bitcoin and crypto-markets are perceived as the perfect hedge against volatility in the financial markets. Large volumes of net short positions on the VIX tend to suggest that a bear market is coming and this feeds into the cryptocurrency narrative. There is plenty of evidence to suggest that European market performance warrants concern for the year to date. The Stoxx Europe 600 is down 1.52%, the Stoxx Europe 50 is down 10.34%, the Euro Stoxx 50 is down 11.31%, the Euro Stoxx is down 1.75%/ The performance of US markets is quite the opposite, with YTD gains of 16.84%. From a technical perspective Euro Market declines are enough to drive up significant demand for Bitcoin, as evidenced by recent price movements.