AUS
NZ
UK
CA
USA
IND
Highlights
- Bitcoin’s rise or fall can have a major impact on the entire cryptocurrency market
- One of the key reasons behind Bitcoin’s price fall can be profit booking by some investors
- The other reason can be regulatory crackdown on Bitcoin in a major economy like China
If S&P 500 index is the heart of the global stock market, Bitcoin is the heart of the global crypto market.
This heart of the crypto world often decides what trajectory the overall market takes. There are occasions when individual cryptos like Ether or Cardano (ADA) may take a different trajectory. This happens when the Ethereum’s blockchain makes some positive noise or Cardano undergoes some tech upgrade.
That aside, if Bitcoin is going down, the reasons can be these.
1. Regulatory crackdown
At one point in time, Bitcoin was hovering near US$65,000 in April 2021. This was followed by a crash where Bitcoin eventually came below US$30,000 apiece by mid-August 2021.
The two reasons behind the crash were China’s crackdown on the cryptocurrency space and Elon Musk’s negative stance on Bitcoin’s excessive power consumption. In the US, the Senate’s Banking Committee discussed a topic ‘Cryptocurrencies: What are they good for’. In this hearing, Sen. Elizabeth Warren had heavily criticized the crypto investment space by calling it a threat to the financial system.
Recently, all major regulatory authorities of China including the People’s Bank of China issued a letter that said all crypto activities are ‘illegal’. Major economies are trying to arrest the flight of capital from the local economy into crypto investments via online crypto exchanges. Some are also launching CBDCs.
Also read: Can Bitcoin be termed as the ‘asset of the century’?
2. Profit booking by investors
This is a quite downplayed subject. Profit booking simply means an investor selling a part of the portfolio to earn capital gains. This creates a supply pressure in the market and brings down prices.
The crypto investment market is filled with both amateur retail investors as well as seasoned institutional investors. The latter category is well-versed with the idea of profit booking. They also have a set target for profits and when the target is achieved they book profit instantly. Retail investors, on the other hand, lack the expertise. The ‘HODL cryptocurrency’ is a popular term. It means people must hold onto their crypto assets.
But what happens is that big investors usually hold bigger volume. When they start selling, the price falls due to demand and supply gap. The supply dwarfs the demand.
Also read: How Can I Buy Cryptocurrency In Canada?
If you didn’t know, the Sandwich maneuver or sandwich bot attack is employed by some investors to find new buyers for their upcoming crypto holding beforehand.
3. Negative sentiments
Apart from the above two, there can be some other factors impacting the price of Bitcoin. For example, a sudden light shone on some negative aspect such as environmental damage or vulnerability to hacking. A few influential billionaires like Musk can also swing the prices with a single tweet.
Apart from the above two, there can be some other factors impacting the price of Bitcoin. For example, a sudden light shone on some negative aspect such as environmental damage or vulnerability to hacking. A few influential billionaires like Musk can also swing the prices with a single tweet.
In the Bitcoin investment space, what usually happens is that positive developments do not add too much. For example, when El Salvador declared Bitcoin a legal tender, the value did not go north. In contrast to this, negative sentiments – when any country cracks down on some crypto exchange – have a substantial impact on Bitcoin prices.
Also read: How is crypto taxed in Canada?
At the time of writing, Bitcoin was trading at nearly US$47,000 apiece, up almost 15 per cent over last seven days, according to CoinMarketCap.
