Bitcoin has come a long way since the days of being used on the gritty streets of the dark web and has since carved out the reputation of being a legitimate currency. This road has been fraught with the cycle of boom and bust and is comparable to nothing, for there is nothing like it to compare Bitcoin with.
Earlier this year it hit an all time high of around $65,000, and in late May the reputable CNBC reported that bitcoin had plunged to the value of $30,000 per coin.
Since then, it has rebounded this month and at the time of this publication sits at a value of $35,420. However, it is predicted that it could fall and rise again. In this expository text, we are going to reveal the real reason behind cryptocurrency volatility.
The Elon Musk Factor
Go to any cryptocurrency board and you will find a certain rage for this man. The once loved inventor who portrayed himself as a Star Trek hero has been ripped from the hearts of many. That is because his business interest is responsible for an artificial rise in the crypto markets.
This was brought on by two important announcements.
The first announcement came in January of 2021 when Tesla announced that it would purchase 1.5 billion dollars worth of Bitcoin. Such a large buy-in created a natural increase in the value of cryptocurrencies across the board, but the speculation drove the market further.
Next Tesla announced in May of 2021 that it would begin accepting Bitcoin for the purchase of electric cars both in the form of a down payment or to buy outright. For a major car company to announce this was incredible and caused a bull market that sooner or later was going to dip anyway.
Speculation drives markets more so than value and cryptocurrencies are no different. It’s true that Elon Musks’ tweets are ambiguous and leave the market in a state of flux, but in truth, one man’s Twitter account cannot affect crypto to this degree.
Enter Further Chinese Regulation
In 2017 Bitcoin experienced one of its first major blows when the Chinese government regulated cryptocurrencies and banned domestic exchanges. Because of his profile, Elon Musk has taken the spotlight and a lot of people do not know the Chinese government has acted again.
All cryptocurrencies felt this because the regulation is not pertaining only to Bitcoin.
It has been reported that the government has banned holding cryptocurrency assets in liquid form and will administer harsh penalties to banks that facilitate the holding of these digital assets. The genesis of this decision is to make the digital Yuan rise in popularity and eliminate anonymity.
Now in June, we learned that several provinces have stopped issuing cryptocurrency mining permits due to environmental concerns. Considering that China still boasts 70% of Bitcoin mining that brings out fear in investors and causes a sell-off. As China continues to crack down on what they perceive as a threat, cryptocurrencies will surely keep feeling the effects of those decisions.
Where We Go From Here
On the digital horizon, hope is seen. Past those tempestuous seas of government regulation, there are mid-sized nations that welcome cryptocurrencies. It was just released this month that the nation of El Salvador has made Bitcoin a legal tender in the country, a first of nations.
With this glass ceiling being broken it is most likely an indicator that other nations will follow suit. As larger countries over regulate it is only reasonable to speculate that smaller economies will want to take advantage of that and welcome unwanted businesses.
While the news is not great for cryptocurrencies, it’s not all bad either.
At Solutiontales we make it easy to understand the throes of cryptocurrencies. Remember, a wise investor can make money in a bull or bear market when given the right data.