Bitcoin prices experienced some notable price fluctuations in July, pushing higher as anticipation surrounding the halving drove bullish sentiment.

In spite of ups and downs over the 30-day period, bitcoin volatility fell significantly in July. By the end of July, 30-day realized volatility had declined to 27%, compared to 30% at the end of June.

Arthur Hayes, CEO of leveraged trading platform BitMEX, said that the decline in this key metric likely had both positive and negative effects on the market.

Hayes told CoinDesk:

“When volatility falls, so does trader interest and that takes the price down with it.”

Indeed, July’s most high-profile news story was ultimately a non-event.

The halving saw a reduction of the network’s miner reward from 25 BTC to 12.5 BTC. This event took place on Saturday, 9th July, when the 420,000th block was mined.

Strong market sentiment

Still, that wasn’t to say there weren’t notable developments in the market’s fundamentals.

In July, market sentiment was stronger on average than in any other month in 2016, according to figures provided by bitcoin trading platform WhaleClub. During the month, 81% of total position volume was long.

This figure nearly doubled January’s figure of 43% and far surpassed February’s 55% total.

Past that, it was notably higher than the 62% that sentiment averaged during the first seven months of 2016.

The trader optimism that existed in July was also illustrated by WhaleClub confidence data, which measures the percentage by which a particular day’s position sizes were larger than average. Confidence averaged 82% during July, higher than any other month in 2016 except February, when it reached 83%.

While July’s confidence measure nearly doubled every month in 2016, it did not sharply exceed the other monthly confidence figures the way sentiment did. The lowest confidence figure observed for the year was 68% in June, and the remaining months registered figures between 71% and 74%.

Market sentiment was particularly strong leading up to the halving, as 89% of total position volume was long between 1st July and 8th July, according to additional WhaleClub data.

During this period, confidence averaged 82%. These figures not only exceeded those for July as a whole, but far surpassed the sentiment and confidence measures for the first seven months of 2016, which were 62% and 63%, respectively.

During this time, bitcoin prices rose to as much as $704.42 on 3rd July, nearly 5% from the opening price of $672.48 on 1st July, CoinDesk USD Bitcoin Price Index (BPI) data reveals.

The digital currency’s price had recently suffered a “sudden and intense” decline from nearly $800 to $550, and “the price rise back to $700 was a natural market response” as traders took advantage of the depressed price that existed before the halving, said Zivkovkski.

He emphasized that before the price dropped more than 13%, Whaleclub registered a record long-short ratio of 22 to 1, which pointed to an abundance of market participants having long positions open.

“No new money entered the system, and following a few days of low volume and failure to reach new highs, low entry buyers triggered a large sell off by taking profit,” he said.

Impact of halving

When the much-awaited halving finally took place 9th July, bitcoin prices fell to as little as $626.87, 11% lower than the monthly high.

Tim Enneking, chairman of cryptocurrency investment manager EAM, spoke to how the digital currency was bound to suffer a fallback.

“The halving is what drove prices from around $400 to almost $800,” said Enneking. “[This effect] was not lasting, however, with an almost immediately retreat back after the fact to $700 and then $600.”

Even though bitcoin prices declined following the halving and remained subdued for a few days after the event, the markets remained bullish.

WhaleClub data showed that in July, 81% of total position volume was long and confidence stood at 76%.

Mining production

Another area market observers had pointed to when emphasizing the potential drawbacks of the halving event was mining production.

As miners faced the possibility of generating less revenue, some analysts voiced concerns about the long-term viability of some companies.

Analyst Chris Burniske, blockchain products lead at investment manager ARK Invest, said these concerns proved overblown. “Hash rate trends since the halving have been reassuringly stable,” he said.

Still, he suggested that there perhaps isn’t enough evidence to suggest all halving events will be similarly smooth for the network.

“That said, if the hash rate stays flat over the coming years, then it actually gets cheaper to attack the network due to the deflationary effects of technology,” stated Burniske. “Hence, watching the hash rate with each halving of the block reward will be critical to assessing the efficacy of long term incentives for miners to support the network.”

Using a basic analysis, Burniske estimated that capitalizing a 51% attack would currently cost $680m. Given this figure, he emphasized that the mining network has remained “extremely robust” throughout the halving.

Market developments

While the halving – and the sentiment surrounding this event – grabbed the lion’s share of the attention in July, market observers pointed to other developments as contributing to bitcoin’s price fluctuations.

Some analysts asserted that the Brexit, the highly visible exit of the UK from the European Union (EU), affected bitcoin prices in July.

While British voters approved the proposal of leaving the EU during the month, the situation could help heighten global macroeconomic uncertainty for years to come. The nation’s officials have not yet triggered Article 50 of the Lisbon Treaty, which is needed for the UK to formally begin the process of exiting the EU.

Once they do, they will have two years to negotiate new agreements with trade partners.

Analysts see the EU as a potential influence on the price of bitcoin ahead.

“I think the Brexit has something to do with the relative stability (or conversely, lack of uptick) of BTC, as the industry in general sees it as an opportunity for bitcoin (and other meta-assets) to play a larger role in the UK economy,” said Rik Willard, founder and managing director of Agentic Group LLC.

Algorithmic trader Jacob Eliosoff also weighed in on the situation, stating that the Brexit probably boosted bitcoin in July, thought he said the US election, and the strong polling observed by Republican nominee Donald Trump were also factors.

Yuan manipulation

Another development that grabbed the attention of digital currency market observers was the People’s Bank of China’s (PBOC) manipulation of the yuan. The central bank has maintained a currency peg to the dollar for years and reduced this fixed exchange rate more than once in 2016.

These policy moves generated significant visibility, as some market observers asserted that devaluing the yuan would prompt Chinese market participants to put their funds into bitcoin as a store of value.

Olaf Carlson-Wee, founder of digital asset hedge fund Polychain Capital, commented on this situation.

“Chinese markets usually drive bitcoin prices, especially when it’s a bull run,” he said.

Wee believes July saw some portion of wealthy Chinese citizen using bitcoin to escape capital controls, which in turn helped drive the market.

While many have pointed out the relationship between yuan devaluation and bitcoin demand, in July, the bank boosted the yuan’s daily fixing.

Hayes described this as “a price negative factor”.

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