So there are several factors at play here. First of all, remember that cryptocurrencies like bitcoin (BTC) are decentralized. Unlike stock prices, crypto values are not affected by how companies perform or what commodities are in demand. With bitcoin and other digital currencies, pricing is mainly about general public sentiment.
One of the most infamous price swings happened last year courtesy of tech billionaire Elon Musk, CEO of electric car maker Tesla. On February 8, 2021, the company announced that it had not only acquired $1.5 billion worth of BTC (all figures in US dollars), but that it had begun accepting the cryptocurrency from customers. This was important news, as a trillion dollar company backed BTC as a store of value and means of payment. As such, the price of BTC has risen from $38,685 on February 8 to $57,600 on February 21.
However, a few months later, on May 12, 2021, Musk announced that Tesla would stop accepting bitcoin payments, citing concerns about crypto mining power consumption. The price of BTC collapsed, falling from $56,865 on May 12 to $34,560 on May 29. As you can see, public sentiment changed significantly during these two periods, as a direct result of Tesla’s announcements.
How do upgrades and hacks affect crypto prices?
Cryptocurrency prices are also affected by protocol upgrades and hacks. Let’s look at an example.
Bitcoin’s protocol undergoes an upgrade called a “halving” every four years. Each time, the block reward for each block mined is halved. This reduces the number of bitcoins entering the ecosystem and increases demand, so halving generally has a positive effect on the price of BTC.
First Halving: This halving happened on November 28, 2012, when BTC was worth $12. A year later, the price had risen to $1,217. Second halving: This happened on July 9, 2016, when BTC was worth $647. On December 17, 2017, it was worth about $20,000. Third halving: This happened on May 11, 2020, when BTC was worth $8,787. By April 16, 2021, the price had risen to approximately $61,500.
As you can see, the halving has had a huge effect on bitcoin price action. Now let’s look at an example of a significant price drop.
On June 17, 2016, one of the most promising applications on Ethereum, called “The DAO”, was hacked for $50 million worth of ether (ETH). As a result, not only did the price of ETH drop from $20 to $13, but the entire Ethereum community was split into Ethereum and Ethereum Classic, due to a disagreement over how to proceed with the protocol.
This post What affects the price of bitcoin?
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