Elon Musk recently announced that Tesla had sold 10% of its Bitcoin holdings in a tweet. He explained that it was just an experiment to show how cryptocurrency’s liquidity makes it a better alternative to keeping cash on the balance sheet after it caused a stir on Twitter.
Elon Musk, according to Dave Portnoy, president of Barstool Sports, was enraged by this act and accused him of strategically raising the price of Bitcoin to profit later by selling it. Tesla’s earnings statement for April 26, 2021, showed a profit of $101 million from the sale of some of its Bitcoin assets. Earlier in 2021, the firm made a public statement about its acquisition of Bitcoin worth more than $1 billion. ImmediateEdge.biz is a cryptocurrency trading site that brings you up to date with all Bitcoin developments.
Elon Musk responded to Portnoy’s tweet by stating that he has not sold his personal cryptocurrency investment. The firm had just completed an experiment to demonstrate bitcoin’s effectiveness. According to Tesla’s Chief Financial Officer Zachary Kirkhorn, the company believes in Bitcoin’s long-term value.
Bitcoins, according to some strategists, are still too risky when compared to cash because they are simply speculative investments that lack the consistency required to become a legitimate cash substitute. BCA Research Inc., for example, has stated that Bitcoin’s volatile nature prevents it from serving as a store of value or unit of account, both of which are essential functions of currency.
If you have been following Elon Musk on Twitter, you are well aware that his tweets have a major effect on the price of cryptocurrencies. He has long been a vocal supporter of cryptocurrencies, which is reflected in his decision to begin accepting Bitcoin payments for Tesla vehicles soon.
How Did Musk’s Tweets impact the price of Bitcoin?
Elon Musk has over 47 million Twitter followers, so when he tweets, people pay attention. He can influence market movements.
Remember when Musk updated his Twitter bio to include the hashtag #bitcoin? It occurred on January 29, 2021, and the price skyrocketed from around $32,000 to around $38000 in an instant. Despite a subsequent drop to nearly $36,000, mostly due to profit-taking, it quickly rebounded to $38,000 in the following hours.
Not every one of his Bitcoin tweets has a positive effect on the market. “Bitcoin is my safe term,” he tweeted on December 20, 2020. The price fell by 1.7 percent as a result, with no apparent shift in trading volume.
Factors that Affect the Price of Bitcoin
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Supply and Demand
The amount of Bitcoin exchanged on exchanges is always a small fraction of the total supply in the market. Since Bitcoin is seen as more of an investment opportunity than a currency, most of it is kept as savings. There is a limit on how many Bitcoins will ever be in circulation, which is set at 21 million. As a result, when people decide to hold Bitcoin, there are not many available for purchase, causing demand to rise.
Acceptance of Bitcoin as a daily form of payment is one factor that can have a significant impact on its price. As the demand for a stock rises, the price rises, and when demand falls, the price falls. People do not want to miss out on this chance to broaden their horizons. As a result, rising prices are being driven up by increased demand combined with reduced supply.
The presence of reputable companies and high-profile investors, who have invested significant sums in this cryptocurrency, as well as businesses that support bitcoin transactions, has suddenly fueled the price of Bitcoin.
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Regulatory Changes by Governments
Since bitcoin is such a novel idea, regulators have been discussing how to define it. Cryptocurrencies are listed as stocks by the Securities and Exchange Commission (SEC) but commodities by the Commodity Futures Trading Commission (CFTC).
Even though Bitcoin is decentralized, and government decisions cannot directly control it, it can influence the trading system, which will cause investors to change their minds. If a government chooses to prohibit the selling of bitcoin in a specific nation, investors who already hold Bitcoins would be concerned.
People stop investing in cryptocurrency when the rules become too strict, resulting in a drop in value. Similarly, if the government is supportive, it may act as a catalyst, causing the price to rise.
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Influence of the Media
The impact of media attention on cryptocurrencies has been shown time and time again. The same thing happened recently when Bitcoin’s all-time highs made headlines. The general public has become aware of Bitcoin’s ability to become the digital currency of the future. The increased media coverage piqued people’s interest in learning more about this new investment option. The more information they gathered, the more concerned they were about missing out on this opportunity. This has attracted many new cryptocurrency users.
Some information about cryptocurrency spreads like wildfire. When an investor learns something new, he instantly shares it with his colleagues, who behave in a similar manner. Social media can be an effective tool for disseminating cryptocurrency news. Positive media coverage naturally raises the price, while negative media coverage will lower it.
Bitcoin has also gained legitimacy as a result of large corporations such as PayPal and Tesla investing in it. When large organizations declare their intentions to help something, it is human psychology to believe it is trustworthy.
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Changes within the Bitcoin Community
The bitcoin group wields some regulatory influence, and its decisions have the potential to cause price volatility. This group is also struggling to reach a consensus that will ensure Bitcoin’s medium and long-term viability. Whatever decision the group makes has a direct impact on the Bitcoin blockchain, causing havoc in the ecosystem.
A hard fork will occur if there is a dispute, such as when half of the group decided to increase the block size in 2017, resulting in the separation of two blocks that operate under separate laws. In August 2007, Bitcoin Cash was born in this manner.
These periods of confusion among community members about the rules of bitcoin and its future often have a negative effect on prices. However, it has been found that after the fork, bitcoin returns to its previous status or even surpasses new milestones. Such times can be taken advantage of by saving when the price is low and profiting when the price returns to its previous level.
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Bitcoin’s Competition
Bitcoin single-handedly has succeeded in spreading the idea of cryptocurrency across the world. In addition, it is the most widely used cryptocurrency. And as a result of its popularity, hundreds of new cryptocurrencies have been developed. Although some were able to make a name for themselves in the industry, some were nothing more than Ponzi schemes. Tether and Ethereum have become extremely popular.
Altcoins are any cryptocurrencies that aren’t Bitcoin. Bitcoin is now the most valuable cryptocurrency, with the largest market capitalization. However, some altcoins, such as Ethereum Tether, Binance Coin, Cardano, and Polka Dot, are considered its main competitors. The price of Bitcoin is affected by market capitalization.
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Political Events
Political movements influence the status of conventional currencies, and bitcoins are no exception.
Surprisingly, however, the effect on the price differs in both cases. When central bank currencies suffer a negative effect, demand for Bitcoin rises. People look for alternative investment opportunities when they lose confidence in the country’s economy. Finding a way to get away from government policies feels good in these circumstances. They are becoming more willing to give cryptocurrencies a chance. Bitcoin being the symbolic representation of cryptocurrencies, its price will increase first, followed by other cryptocurrencies.
A notable example is the Greek crisis of 2015, which resulted in many Greek traders moving to Bitcoin. When the United Kingdom voted to leave the European Union, a similar impact was observed. Furthermore, when Donald Trump was elected President of the United States of America.
Bitcoin has its own causes, like how those ongoing factors influence the financial markets. Since Bitcoin is so new, the implications of these variables have a greater impact on its price. Anyone considering investing in Bitcoin should stay informed about the factors that can influence the price. If one can predict future developments, they can plan an optimal way to invest in Bitcoin while minimizing risks.
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