Bitcoin Price: Factors that Affects the Bitcoin Price Move up and Down so Fast- While bitcoin price fluctuations appear to be random, they are generally driven by the same fundamental drivers that drive traditional markets. Some analysts suggest bitcoin (BTC) is immune to global financial shocks; it’s a hedge against things like inflation, and a sure bet against waves of uncertainty, they say. According to the media, this is not the case. Exogenous market shocks, and other factors that do not affect traditional financial goods, such as international regulation and social media, are all mentioned in several news pieces.
Bitcoin Price: Factors that Affects the Bitcoin Price
Here are the factors that affect the bitcoin price:
Cryptocurrencies frequently tumble in lockstep with global markets. In March 2020, when the coronavirus outbreak slowed global markets, bitcoin plummeted along with it.
Bitcoin plunged by 57 percent in a week in mid-March, hitting lows of $3,867. Similar to the stock market, it recovered and grew stronger than before, reaching new highs the following year. Analysts believe this was owing to the surplus time and disposable cash that some retail traders had during the coronavirus pandemic, as well as the stock market’s buoyancy.
Other market shocks have also caused Bitcoin to react. For example, bitcoin dropped 6.9% in late 2021 as traders worried that Evergrande, the Chinese real estate behemoth, was on the verge of collapsing, and again when Didi announced ideas to not list on the New York Stock Exchange. It has reacted positively to inflation in general, rising in tandem with consumer goods and material prices.
Although it is impossible to detail all of the economic shocks that affect bitcoin, there is enough data to imply that bitcoin follows global markets to some extent.
When a large number of highly leveraged traders all bet on bitcoin prices moving in one direction, it opens the door for other large investors (whales) to move the price in the opposite direction. This causes a chain reaction of liquidations, causing the bitcoin price to plummet and resulting in massive paper losses for leveraged long traders.
Finally, weekends can also have a substantial impact on bitcoin price fluctuation. During these times, fewer traders are actively monitoring the markets, which means there is less resistance when prices fall and less profit taking when bitcoin grows.
Because it controls which markets can access bitcoin, where enterprises can set up shop, and where bitcoin miners can operate, international legislation has a significant impact on its pricing. While countries like the United Kingdom, Thailand, and India have demonstrated to have a direct impact on bitcoin price, the United States and China have the greatest impact.
The drop in bitcoin price from almost $65,000 in April 2021 to around $35,000 by mid-June was largely due to China’s restriction on bitcoin mining. When the Chinese government started in September 2021 that cryptocurrencies are unlawful, Bitcoin dropped 5.5 percent.
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Bitcoin reacts to news from regulators and legislators in the United States. President Joe Biden’s infrastructure bill in 2021 harmed bitcoin price because it made it impossible for decentralized wallet companies to provide tax data on their users, something they don’t collect by nature.
It’s not all horrible, though. Bitcoin, like most other currencies, reacts positively to good news. The price of bitcoin rose by roughly $3,000 in October 2021, owing to expectations that the US Securities and Exchange Commission would approve a bitcoin future exchange-traded fund.
Traditional financial moves can help or hurt Bitcoin prices since they dictate how easy it is for financial hotspots like Wall Street to invest in cryptocurrency.
Moves that encourage more Wall Street money to flow into bitcoin, such as large banks providing bitcoin to their customers, are frequently correlated with price increases. Traders are wary of adverse news, such as a Wall Street titan criticizing bitcoin.
When prominent corporations declare that bitcoin has been added to their balance sheet, the price of bitcoin often rises. After companies like MicroStrategy and Tesla invested in bitcoin, the price of bitcoin skyrocketed.
In contrast, the overall market valuation of cryptocurrency plummeted from $2.43 trillion to $2.03 trillion after Tesla CEO Elon Musk announced that the company would stop accepting bitcoin payments in May 2021 due to environmental concerns.
Traditional financial products, particularly derivatives that represent contracts that monitor the underlying price of BTC, can have an impact on the market price of bitcoin.
In a nutshell, crypto options provide investors the right, but not the responsibility, to purchase or sell the underlying asset (in this case, bitcoin) at a specific price (known as the strike price) before or on a specific date.
When a high number of out-of-the-money (OTM) bitcoin options expire at the same time, the market volatility of bitcoin can be affected. When options are out of the money, they are referred to as OTM.
When the striking price (the negotiated price to buy the underlying asset) is greater than the current market price, a call option (the right to buy the underlying asset) is deemed out-of-the-money.
Big investors, such as market makers, often hedge with the underlying asset before expiry to avoid long-term losses if bitcoin moves in the opposite direction.
The distinctions between traditional finance and social media influence can blur when tech CEOs are all over social media. Large influencers’ comments on bitcoin seem to irritate retail investors more than they do large influencers’ comments about bitcoin.
Bitcoin increased by more than 20% after Elon Musk updated his Twitter bio to bitcoin, signaling to retail investors that Musk might be poised to invest in bitcoin, which he did later through Tesla. This is in addition to the CEO’s significant control over other assets, particularly dogecoin.
Some analysts have attempted to forecast prices using social media. Two South Korean academics determined in a research published in 2021 that bitcoin posts are more often when prices are high and less frequent when prices are low. The price of bitcoin is connected with negative and positive posts, according to a 2019 research paper by Indian experts.
These were the four major factors that affect bitcoin price. You must have got a good idea why the price of bitcoin fluctuates quickly.
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