This is a guest post by Ian Worrall:
Normally in the Bitcoin world sudden price fluctuations ranging from $10-$30 can be attributed to market manipulation by large holders of the virtual currency. However, when the price changes greater than $30 in a short period of time there is typically something more behind it such as imposed government regulations or technical implications such as a mining pool nearing 51% of the total network hash rate.
Today, September 18, 2014, the price of Bitcoin is down 9.39% ($42.70) at the time of writing this article and has decreased by a whopping 17% this week (≈$70) with no clear indications as to why. Through our analysis we believe we have determined the reason. It has nothing to do with the Bitcoin industry but rather the upcoming IPO of Alibaba, the Chinese e-commerce giant, which is set to go public tomorrow, Friday the 19th, which would bring in a vast amount of support from Chinese investors from banks to individuals who have wanted to showcase that the Chinese market means business for quite some time, and this is their golden ticket to do so.
The Alibaba IPO has generated a lot of noise in the financial markets as the IPO date has drawn closer and tonight the leading Wall Street investment banks are holding a meeting to determine the official share pricing of Alibaba as it hits the markets tomorrow. Originally the price per share was said to be in the $60 range, but earlier this week Alibaba raised that estimate to $66-$68 per share. We believe that the Chinese Bitcoin holders began dumping their holdings earlier this week to free up capital to invest in Alibaba when it goes public.
The largest Bitcoin exchange by volume, BTC China, which covers an average of 38% of the total Bitcoin transactions has averaged around 19,000 Bitcoin per day in trades. Today, the volume is currently up over 52% at 29,400 Bitcoin and rising.
On top of increased volume on Chinese exchanges, the volume on the European exchange platform Bitstamp is up well over 100% today at around 21,400 Bitcoin compared to the monthly average of 9,200 Bitcoin. This is right after many of the leading German analysts from renowned investment banks have indicated that Alibaba is a strong buy.
Based on this information, we have concluded that many large Bitcoin investors from China and Europe have exited their positions in Bitcoin to put into the Alibaba IPO.
Are these investors gone for good? No, many factors will determine how long it is before these investors close their positions in Alibaba and re-enter the Bitcoin market. If the Wall Street banks issue an initial price lower than expected we could see the price rebound slightly as soon as tonight. After that, the key factors will include how the price fluctuates during the public offering tomorrow and Post-IPO early next week. If Alibaba remains strong and continues to grow in value, we may not see this money flow back into the Bitcoin market until a “bump” in the economy occurs.
The U.S. Federal Reserve has kept interest rates low as indicated in their public statement yesterday, but they intend to begin raising them as we head into 2015. If this scenario were to occur mid-2015 would be a definite point in time when the investment money flows back into Bitcoin, and at even greater volume due to the gains achieved by investing in Alibaba long-term.
Is it guaranteed that the money will flow back into Bitcoin? While nothing is ever set in stone, our research has shown a correlation between the price of Gold and Bitcoin price movements. This being said, Gold tends to rise, based on historical records, when the markets start to become unstable. So we do believe that a vast majority of the money invested in Alibaba and the gains associated will find its way back into Bitcoin.