Even while bitcoin’s price swings appear arbitrary, they are frequently caused by the same basic factors that influence traditional markets.
According to some observers, bitcoin (BTC) is immune to shocks that have an impact on the global financial system; it is a hedge against risks like inflation and a sure bet against waves of uncertainty. No, the media claims. Numerous news stories demonstrate how bitcoin is impacted by external market shocks as well as other factors that don’t effect traditional financial products, such global regulation and social media.
We’ll offer you a brief overview of the key factors that drive up or down movements in the price of bitcoin in this article.
Cryptocurrency often collapses along with major markets. Bitcoin plummeted along with the rest of the world’s markets in March 2020 due to the coronavirus epidemic. Midway through March, bitcoin dropped by 57 percent to a low of $3,867. It then recovered and grew stronger than ever, just like the stock market, reaching record highs the following year. Analysts assume that this was caused by retail traders’ abundant free time and disposable income during the coronavirus pandemic, as well as the booming stock market.
Additionally, Bitcoin has responded to other market shocks. For instance, bitcoin dropped 6.9% in late 2021 when investors worried that Chinese real estate tycoon Evergrande was ready to go under. It also dropped when Didi indicated it would be delisting from the New York Stock Exchange. In general, it has responded well to inflation, rising with the cost of resources and consumer goods.
Although it is impossible to enumerate all of the economic shocks that have an impact on bitcoin, there is enough data to imply that it follows international markets in some ways.
Because it controls which markets may access it, where businesses can set up shop, and where bitcoin miners can operate, international legislation has a significant impact on the price of bitcoin. While nations like the United Kingdom, Thailand, and India have had a direct impact on bitcoin’s price, the U.S. and China are the two biggest markets that have the greatest influence.
In April 2021, the price of bitcoin was close to $65,000. By mid-June, it had dropped to about $35,000. This decline was mostly caused by China’s crackdown on bitcoin mining. When the Chinese government stated that cryptocurrencies are prohibited in September 2021, the price of bitcoin dropped by 5.5%.
Bitcoin reacts to legislative and regulatory news in the US. The infrastructure plan introduced by President Joe Biden in 2021 reduced the value of bitcoin because decentralized wallet providers would have to provide tax information about their clients that they by definition do not gather.
All may not be bad. Good news also has a favorable impact on bitcoin. In October 2021, the price of bitcoin increased by around $3,000 as a result of expectations that the U.S. Securities and Exchange Commission would approve the creation of an exchange-traded fund for bitcoin futures.
Because they affect how simple it is for financial hotspots like Wall Street to invest in bitcoin, decisions made within traditional finance can either increase or decrease bitcoin’s price. Price increases frequently follow actions that would encourage additional Wall Street capital to invest in bitcoin, such as big banks selling bitcoin to customers. Negative news, such as a Wall Street titan criticizing bitcoin, terrifies traders.
When prominent corporations declare that they have included bitcoin in their financial sheets, bitcoin frequently increases. After businesses like MicroStrategy and Tesla made investments in bitcoin, its value increased. Elon Musk, the CEO of Tesla, announced that the company would stop accepting bitcoin as payment in May 2021, citing environmental concerns. As a result, the market valuation of all cryptocurrencies dropped from $2.43 trillion to $2.03 trillion.
The distinction between traditional finance and social media influence can become hazy when tech CEOs are active on social media. Retail investors seem to be especially attentive to remarks made about bitcoin by powerful influencers. After Elon Musk altered his Twitter bio to read “bitcoin,” the price of bitcoin increased by more than 20% as it suggested to retail investors that Musk might soon make an investment in the cryptocurrency, which he eventually did through Tesla. This is related to the CEO’s significant control over other assets, especially dogecoin.