Bitcoin is a digital asset known for its volatility. The cryptocurrency price has tremendously increased from the time of its creation. Its meteoric rise in value started in July 2010. From merely trading at $0.0008, its price jumped to $0.08. In February 2011, the cryptocurrency hit $1 two years after its creation.
In May 2020, Laszlo Hanyecz used 10,000 bitcoins valued at $25 at that time to buy two Papa John’s pizzas. It was the first-ever recorded transaction where it was used as a payment. From then on, BTC (bitcoin) has been adopted as a means of payment by businesses worldwide. The rapid adoption by crypto businesses and institutional investors paved the way for its massive increase in price. But despite this, the cryptocurrency remains volatile due to several factors which vary from security breaches, bad news, uncertainty, high profile losses, and a lot more.
Today, one BTC (bitcoin) is now at $39,864.52 in recent data by Crypto.co. But its current price has decreased by almost 50% of its previous all-time-high at almost $65K. What are the reasons behind the tremendous drop in its value? Let’s take a look at the several factors that have resulted in BTC (bitcoin) hyper volatility that has greatly affected the crypto market over the past few months.
Behind Bitcoin Hyper Volatility
On April 14, BTC (bitcoin) recorded its newest all-time-high at $64,859 sending the industry’s total market cap to more than $2 trillion. But in just more than a month, its price slumped to $30K recording a more than 50% decline and has resulted in a market crash. What are the notable reasons behind this? The forces of two powerful countries, China and the United States are now putting pressure on cryptocurrencies. News on China’s intensive crackdown on all crypto-related activities in the country braced the headlines. Also, the U.S. Federal Reserve’s policy action made an impact on BTC (bitcoin) resulting in its crazy price swings. And last but not least, this may annoy others we know, but this is an undeniable truth, Elon Musk tweets. Let’s now discuss how the above-mentioned influenced the price of BTC (bitcoin).
China’s Crackdown on Crypto Activities
China is home to the biggest bitcoin mining farms in the world. Bitcoin miners in the country account for more than 60% of the bitcoin network’s collective hash rate. In September 2017, the country banned Initial Coin Offerings (ICOs) to protect investors from financial risks associated with cryptos. Trading of digital assets was also placed under the ban. Though it has been hostile to digital assets, it has been friendly to teeming crypto miners in the country. Despite previous reports that miners have encountered harassment from the government, the Chinese authorities denied these claims. Unfortunately, this has taken a new turn.
On May 18, the Chinese authorities implemented a regulation that bans financial institutions and payment companies from providing services related to cryptocurrency transactions. It has also warned investors against speculative crypto trading. On May 19, BTC (bitcoin) plummeted to $30K recording a 33% decrease in its price. But this is not the end of BTC (bitcoin) investors’ dilemma and the crypto market as a whole. China is up again for another regulation aimed at digital assets.
On May 21, when the cryptocurrency is just starting to recover from its decline, Chinese authorities have once again implemented another regulation sending BTC (bitcoin) to a new price crash. Chinese Vice Premier Liu He and the State Council issued an announcement of a looming implementation of rigid regulation to protect the financial system of the country. The authorities have launched an intensive crackdown on bitcoin mining in the country.
“We should crack down on bitcoin mining and trading activities and prevent individual risks from being passed to the whole society.”
BTC (bitcoin) price dropped by 22.94% from its price of $41,252 to $33,552 at that time. According to reports, five provinces in the country have shut down bitcoin mining farms which include Mongolia, Xinjiang, Qinghai, Yunnan, and Sichuan being the latest.
U.S. Federal Policy Action
Federal Reserve Chair Powell was never a believer of cryptocurrencies. According to him, the volatility of cryptocurrencies particularly BTC (bitcoin) undermines their ability to store value, a basic function of a currency. But he also stated that BTC (bitcoin) can be an alternative for gold instead of the dollar.
“They’re highly volatile, see Bitcoin, and therefore not really useful as a store of value,” Powell said in remarks to a virtual summit hosted by the Bank for International Settlements. “They’re more of an asset for speculation. So they’re also not particularly in use as a means of payment. … It’s essentially a substitute for gold rather than for the dollar.”
On June 16, in a report by the Morning Star, Federal Reserve Chair Powell has made an optimistic tone on the U.S. economic recovery and a slightly “hawkish” policy update that raised inflation forecasts and brought forward the timing of an interest rate rise.
After the remark made by the US Fed Chairman, BTC (bitcoin) price dropped by 7.6% the following day.
On June 18, James Bullard, the president of the United States Federal Reserve Bank of St. Louis came with a hawkish comment that BTC (Bitcoin) and the wider financial markets faced a new wave of selling according to a report by the Wall Street Journal. After a streak of lows, BTC (bitcoin) is now down to another 6.38% after the US Fed Chair’s initial remark on the cryptocurrency.
Elon Musk Tweets
Elon Musk, the second richest man in the world according to Forbes with a net worth of $151 billion. Musk used to be a believer of the cryptocurrency until he had a falling out after he removed bitcoin as payment for Tesla on May 13. His action made the price of the digital asset drop by 6.6% at that time. Let’s take a look at how his tweets, yes, his tweets, influenced the price of the BTC (bitcoin).
On May 24, Musk again made headlines when he made a tweet about joining Michael Saylor and a group of bitcoin miners in Northern America. BTC (bitcoin) price slightly increase by 4% after he made the tweet.
On June 13, he tweeted that Tesla will resume accepting BTC (bitcoin) once the energy consumed to mine the cryptocurrency reaches about 50% renewable. The value of BTC (bitcoin) climbed by 10% and surpassed the $40K mark.
Musk is a powerful ally and can be a dangerous enemy at the same time given his clout and influence in the prices of cryptocurrencies particularly to BTC (bitcoin).
These three factors have caused the price of BTC (bitcoin) to go on crazy swings resulting in its hyper volatility. But other factors may also affect the price of the cryptocurrency.
In recent data by Crypto.co, BTC (bitcoin) is now at $39,770.61 and has increased by 2.94% in a 24-hr chart.