Over several hours on May 3, the price of bitcoin spiked from around $5,300 to over $5,700 in major markets, allowing the crypto market to gain more than $7 billion in a single day.
Major crypto assets such as ether (ETH), litecoin (LTC), bitcoin cash (BCH) and EOS recorded gains in the range of 4% to 8% against the United States dollar, fueling the momentum of the crypto market.
Timing of bitcoin recovery is interesting
The abrupt recovery of the crypto market led by the strong upside price movement of bitcoin was largely unexpected due to the controversy surrounding iFinex, the company that oversees the operations of Tether and Bitfinex.
On April 25, the office of the New York Attorney General (NYAG) Letitia James filed a lawsuit against iFinex, alleging Bitfinex of using $900 million taken from Tether’s cash reserve in an attempt to “hide” its $850 million loss.
The NYAG’s office said that Bitfinex sent $850 million to a “bank” based in Panama called Crypto Capital Corp, which allegedly provided banking services to a variety of crypto exchanges that struggled to gain services from major financial institutions.
Ultimately, Bitfinex is said to have failed in recouping $850 million that was sent to Crypto Capital Corp, which likely led the firm to receive a $900 million loan from Tether.
The official document released by the NYAG’s office, which emphasized that the dealing between Bitfinex and Tether were not disclosed to users and investors, read:
“According to the filings, Bitfinex has already taken at least $700 million from Tether’s reserves. Those transactions — which also have not been disclosed to investors — treat Tether’s cash reserves as Bitfinex’s corporate slush fund, and are being used to hide Bitfinex’s massive, undisclosed losses and inability to handle customer withdrawals.”
Yet, despite the troubling development in the iFinex-Bitfinex case, the price of bitcoin has increased from $5,135 to over $5,735 in the past week as of press time.
What triggered the bitcoin rally?
In an exclusive interview with Cointelegraph, Crypto Rand, a widely recognized cryptocurrency trader and technical analyst, said that the upside movement of bitcoin and the rest of the market may have been simply technical.
According to the analyst, throughout the past two weeks, technical indicators were pointing toward a bullish momentum for bitcoin. As the market recovered fairly quickly from the Tether scandal, it likely boosted the confidence of existing investors in the market.
“For me, there is no fundamental reason behind. The Tether situation caused a dump that was recovered in no time. But even that dump stopped in the uptrend range channel support without causing major damages to the macrostructure. My perspective about it is clear. All relays on TA. It was looking pretty bullish since two weeks [ago].”
#Bitcoin looking solid here. Bullish pennant on the making. Target over the $6,000 region. pic.twitter.com/3WMFkuKzBN
— Crypto Rand (@crypto_rand) April 22, 2019
Immediately after Tether and Bitfinex’s general counsel, Stuart Hoegner, disclosed in an affidavit submitted to the Supreme Court of the State of New York, eToro CEO Yoni Assia suggested that the incident could serve as a catalyst for the near-term rally of bitcoin.
“Are the news supposed to pump or dump BTC? It’s bad news, but if $2 billion USDT get exchanged to BTC it actually increases its price… what a predicament. Tether Lawyer Admits Stablecoin Now 74% Backed by Cash and Equivalents,” Assia said.
As Tether holders began to sell the stablecoin for bitcoin — anticipating the stablecoin to lose its peg to the U.S. dollar — it may have driven the demand for the asset on paper. Tether investors buying bitcoin to either keep their funds in bitcoin or to sell for fiat could have fueled the momentum of the asset.