All Eyes On Bitcoin – Making Sense Of Recent Fluctuations
December 9, 2023
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Bitcoin has always been a highly volatile asset, just like all the other digital currencies that came after it and now populate the crypto market.
So, it’s not at all surprising to see the flagship crypto defy expectations and jump in price or, on the contrary, go south all of a sudden. We’ve witnessed Bitcoin swing between unprecedented highs and unexpected lows many times in the past and we’ll certainly see more of that in the future.
Given its instability, the risks of Bitcoin investing are just as high as the return potential. That poses a great challenge for traders and investors who always seem to be walking on thin ice.
It’s easy to learn how to buy Bitcoin, but it’s much harder to figure out when it’s the best time to buy or how to navigate Bitcoin’s troubled waters when prices take an unexpected turn like it happened recently.
Despite its erratic behavior, it’s important to note that Bitcoin price moments don’t usually happen without a reason. Behind every rise and crash registered over the years, there have been a series of factors pulling the strings.
Bitcoin might be a decentralized digital currency that operates free of any central control from banks or government, but it doesn’t exist in a vacuum, outside the influence of micro and macro-economic and geopolitical factors.
That’s why after every upsurge and dip that Bitcoin experiences, crypto experts are quick to analyze the context and look at the aspects that might have triggered the price movement, helping us all gain a better understanding of this highly coveted asset.
Potential Explanations For Current Fluctuations
Bitcoin finally got out of its extended stagnation phase, but instead of resuming its long streak of monthly gains like many in the crypto community predicted and hoped for, it took the opposite path and slipped below $26,000 in a matter of minutes.
Prior to the plunge, Bitcoin had been hovering under the $30,000 threshold for several weeks in a row, with only mild fluctuations and short-lived spikes that unfortunately failed to pick up steam and evolve into a bull run.
However, on the 18th of August, following several days of downward movement, Bitcoin suddenly tumbled more than 8% in just 10 minutes, hitting a two-month low of $25,697. A minor appreciation followed soon after, taking the price above $26,000. At the time of writing, Bitcoin was trading at $26,023. The recent turn of events left many crypto enthusiasts puzzled as to what caused Bitcoin’s value to drop so suddenly after such a long period of low volatility.
According to Glassnode and Coinshares experts, there may have been several factors at play here. A few days before the drop, analysts at Glassnode, a leading blockchain data and intelligence platform, talked about the asset’s uncharacteristically low volatility indicating an extreme level of exhaustion and apathy in the Bitcoin market.
Coinshares, a digital assets investment firm, also published a report that touched upon the low trading volumes registered on major crypto exchange platforms. The study points out that based on past data, periods of record-low volatility usually give way to significant price fluctuations, leading to major gains or losses.
It’s also possible that the liquidation of nearly $1 billion worth of crypto in long positions, with BTC positions accounting for more than 50% of the total, may have contributed to Bitcoin’s startling nosedive. Both reports seem to suggest that people’s interest in digital assets has declined, and that can explain the downward trend that Bitcoin is on at the moment.
SpaceX’s Bitcoin Pull-Out – Coincidence Or Trigger?
Another event that preceded Bitcoins’ recent slide was a report from the Wall Street Journal revealing that SpaceX, the aerospace manufacturer and space transportation company owned by Elon Musk, has sold all or a part of its Bitcoin holdings. SpaceX reportedly recorded $373 million worth of Bitcoin on its balance sheets in 2021 and 2022.
The news that SpaceX may have dropped the assets could have sparked a reaction in the market, prompting other stakeholders to follow suit. Although there’s no way to prove the connection between the two events, such a response wouldn’t be unusual given Elon Musk’s long history of creating turbulences in the crypto industry.
The billionaire has always been outspoken about his stance on cryptocurrencies and often shared his views with the world via social media posts. His infamous tweets about Dogecoin caused quite a stir in the crypto space, leading to an immediate surge in the price of the meme-inspired crypto.
Similarly, after Musk tweeted that Tesla would stop accepting Bitcoin payments on May 2021, the asset suffered a sudden drop in price, falling from $54,819 to $45,700. This goes to prove that not even crypto giants like Bitcoin are immune to Musk’s influence and his words have a big impact on market developments.
Macro-Economic Factors
Speculations aside, there have also been certain developments in the global financial market that could have impacted Bitcoin’s behavior. The devaluation of the Chinese Yuan is one of the factors that experts point to as a potential trigger.
The Yuan has hit its lowest value in nine months and that can have repercussions on financial markets around the world. Going back to 2015, when China devalued the Yuan amidst a slowing economy, we notice that the Bitcoin price fell by 23% shortly after. Now that we’re dealing with a similar context, we can expect similar results.
Some analysts also bring into discussion China’s property developer Evergrande Group which recently filed for bankruptcy. The fallout impacted many financial players in unrelated markets, and the shockwave could have reached risk-on assets such as Bitcoin as well.
We may never know for sure all the factors and events that have led to the most recent Bitcoin selloff, but what we do know is that this isn’t the first and it probably won’t be the last time that the flagship crypto surprises us with unexpected price fluctuations.
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