Bitcoin is once again riding the wave of volatility

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Bitcoin is famous for many things. Apart from being the oldest and largest cryptocurrency by market capitalization, it’s also one of the most volatile coins in existence. Its heightened volatility is what caught investors’ eye in the first place and made Bitcoin the powerhouse it is today. Many were quick to buy Bitcoin with credit card or using other payment options so they could take advantage of its high return potential.

Over the years, we’ve grown accustomed to the wild price fluctuations that have turned Bitcoin into such an appealing, albeit risky, investment venue. No one is surprised to hear about the Bitcoin price surging or tumbling, but what it’s rather surprising is for the flagship crypto to stagnate for long periods of time. And that’s exactly what has been happening over the past few months until recent development started to shake things up once again.

All quiet on the Bitcoin front… or is it?

After starting 2023 with a blast and gaining more than 83% in the first half of the year, outpacing its competitors, Bitcoin’s price rally came to a standstill recently. For months, Bitcoin’s price remained trapped in a narrow range, trading between $29k and $30k, with only brief glimmers of bullish momentums that were quickly toned down by subsequent dives. Things got so quiet on the Bitcoin front at one point that the asset came close to reaching historically low volatility. Needless to say, that is very uncharacteristic for a coin that has been both coveted and criticized for its extreme price swings.

Many pointed out that the price stability couldn’t last much longer and might in fact be a sign of a large move approaching. As it turns out, these predictions were entirely correct. Bitcoin’s idle phase is finally over and the king of crypto got back to its old habits, doing what it’s always done: keeping traders and investors on the edge of their seats with its wild price swings.

Unfortunately, while everyone expected the next volatility bout to drive Bitcoin’s value up, the exact opposite happened. On August 18th, Bitcoin plunged 10% to a nine-week low of $25,649, shaking the entire crypto market and ruining traders’ and investors’ hopes of a new bull run. The long-awaited price move finally occurred, but not in the desired direction. The flash crash triggered close to $1 billion in liquidations across the entire cryptocurrency market. As expected, the largest part of the liquidations came from Bitcoin and Ethereum trades. Shortly after the abrupt slump, Bitcoin rebounded slightly and was trading for $26,510 at the time of writing.

Why is Bitcoin sliding again?

According to statistics, the recent dip represents the lowest level Bitcoin has registered since mid-June when the Securities and Exchange Commission (SEC) filed legal actions against several major crypto stakeholders. This obviously raises questions regarding the factors that may have contributed to the unexpected plunge after months of record-low volatility.

Sudden price movements are common in the crypto market and it’s not always possible to find a reasonable explanation for the way things unfold or pinpoint the forces at play with accuracy, given the multitude of factors that influence the value of digital assets. However, in this specific case, crypto experts and financial analysts have identified a few potential reasons that could clarify why the market plummeted.  

Based on experts’ analysis, one of the factors that may have played a role in the downfall is an Aug. 17 report published in The Wall Street Journal announcing that SpaceX has sold all or a large part of its Bitcoin holdings. According to the news outlet, the Bitcoin holdings owned by Elon Musk’s aerospace technology firm SpaceX amounted to a total of $373 million. The figures were extracted from the company’s financial documents published in 2021 and 2022. The WSJ mentioned that SpaceX sold the crypto but they didn’t clarify if they referred to the entire amount or just a part of it. 

Anytime a major player like SpaceX takes a certain stance regarding crypto, the market is keen to listen and act based on the information they receive. This is not the first time Musk muddles the crypto waters, as he has been known to comment on social media about different digital assets and cause an uproar in the market. The fact that Bitcoin dropped two and a half hours after the publication of the report in the WSJ also supports this narrative.

Another factor that could have sparked Bitcoin’s erratic behavior has to do with the shift in market sentiment in the context of a looming increase of interest rates from the U.S. Federal Reserve. The prospect of interest rates getting higher and staying high for an extended period of time has been causing instability in many markets, with high-risk assets like Bitcoin being especially sensitive to these influences.

It’s also possible that Bitcoin’s price crash was influenced by recent whale activity. Crypto whales are individuals or entities that own large amounts of a digital coin, such as Bitcoin or Ethereum. They are notorious for causing huge waves in the market with their trading decisions and have the power to influence the behavior of other actors in the crypto space. Data provided by crypto trading and information platform CoinGlass shows that there have been major Bitcoin liquidations amounting to $427 million shortly after news of the drop spread out, and that might have set off a chain reaction across the market.

Wrapping up

The recent price drop is certainly not the news that the crypto community expected to hear after Bitcoin’s long slumber, but it is a sign that things are starting to move in the crypto market. On a brighter note, after news indicating that the Securities and Exchange Commission might finally approve applications for Ethereum futures ETFs, Bitcoin gained 1.2%, proving that there’s still hope for a price recovery in the near future and that interesting developments might be on the horizon.