The real reason behind Bitcoin’s sudden rise

Payments company Square has ignited the Bitcoin and cryptocurrency community with a purchase of $50 million worth of Bitcoin led by Twitter CEO and outspoken Bitcoin advocate Jack Dorsey .

The price of Bitcoin had been hovering above $10,000 since early September but has risen more than 5% on the news, surpassing $11,000 and threatening to resume the bull run that took it from lows of $4,000 in March to $12,000 in March.

Today, Bitcoin prices continued to rise and were closely tied to the broader market, which was boosted yesterday by renewed confidence that U.S. lawmakers will soon agree to a massive stimulus bill that will flood the market with trillions of dollars in newly printed money.

While there is no one-to-one correlation with the stock market, the data seems to indicate that Bitcoin’s near-term trend remains largely dependent on economic developments within the United States.

"Investors continue to focus on stocks with the potential to benefit from additional economic stimulus," Russ Mould, investment director at brokerage AJ Bell, said by email, adding that global markets are "watching" political developments in the United States.

The White House reportedly hinted on Thursday that it wants a massive stimulus bill, a U-turn after U.S. President Donald Trump frustratingly abruptly ended fiscal talks via Twitter earlier this week, with Trump's vague words sending traditional markets and Bitcoin prices sharply lower.

“On long-term charts, Bitcoin has been somewhat correlated with the stock market, as one might expect from riskier assets, especially those that are lax in their response to increased or removed central bank stimulus,” said Marty Greenspan, founder of market analysis group Quantum Economics, in an email newsletter this week. “Increased participation from institutional traders” suggests the relationship “holds true even on short-term charts.”

Since the coronavirus crash in March, stock markets and the prices of Bitcoin and cryptocurrencies have been overwhelmingly influenced by investors’ expectations that governments around the world, led by the United States and the Federal Reserve, will continue to support them with unprecedented stimulus spending.

Bitcoin’s price began to rise along with the stock market yesterday, and in line with this, Square revealed that it had purchased 4,709 bitcoins for $50 million, or about $10,600 per bitcoin, accounting for nearly 1% of the company’s total assets in the second quarter of 2020.

Square and its CEO Jack Dorsey have long been advocates of Bitcoin and its decentralized philosophy.

Dorsey said earlier this month that Bitcoin is “probably the best” currency on the internet, and previously went so far as to suggest that it could become the world’s only currency by 2030.

Square began letting merchants accept cryptocurrencies as early as 2014, launched bitcoin buying and selling on its popular Cash App in 2018, and reported that bitcoin business revenue grew 367% annually in the first quarter of this year. Square Crypto is an independent team within the company that was established last year to support open source bitcoin development.

“We believe Bitcoin has the potential to become a more ubiquitous form of currency in the future,” Square Chief Financial Officer Amrita Ahuja said in a statement announcing the company’s bitcoin holdings.

Square is the second public company to add Bitcoin to its balance sheet in three months, following business intelligence and software company MicroStrategy, which made a $425 million bet on Bitcoin this summer .