Bitcoin’s wild ride has taken another up and down day. After dipping below $30,000, the digital coin surged 18% to $33,918 by early Wednesday afternoon.
The below-$30k dip had to have investors holding on dear life. At one point in the cryptocurrency’s tumble, it briefly erased all of the gains it made so far this year.
Bitcoin wasn’t the only digital currency taking off in various directions. According to Coinbase, Ethereum went from $1,823 to $2,045 in four hours before climbing back up to $2,021.28.
What’s behind crypto’s constant roller coaster ride?
What is causing cryptocurrencies to plunge and then bounce back? These assets are known for their fickleness, but that’s not much of a definitive answer. One cause might be coming from China, where authorities have been tightening the screws on bitcoin mining, the process used to certify transactions and produce new bitcoins.
Another possible reason is also China-based. Earlier this week, the People’s Bank of China said it was advising financial institutions to stop providing services related to cryptocurrency activities such as using cryptocurrency to pay for a purchase made online.
Yet another rationale is that investors have become increasingly ill at ease about Bitcoin’s environmental impact, especially after Tesla CEO Elon Musk flipped his company’s stance on accepting Bitcoin as a way to pay for a Tesla vehicle. When he made his decision, Musk said he was concerned about Bitcoin’s large energy consumption -- a concern that the Central Bank first warned about in 2018 and a point that Ethereum is trying to take advantage of.
When ConsumerAffairs put that question to Shidan Gouran, the founder of Gulf Pearl and one of the earliest blockchain investors, he had affirmed that these sudden rises and falls are all part of cryptocurrencies’ natural volatility.
“Bitcoin has always been an extremely volatile asset with unprecedented fluctuations, in very short periods of time, throughout its history. It’s an asset that is driven completely by sentiment with no real fundamentals,” Gouran commented.
Gouran also agreed on the possible impact from China and Musk.
“There are a number of confounding factors for the current dip. Some of these are the news that China is cracking down further on cryptocurrency mining which has clearly caused some loss of confidence in the retail Chinese cryptocurrency markets, Elon Musk's tweets regarding Bitcoin’s environmental impact, and less talked about, the fact that the Federal Reserve has unexpectedly announced its intention for interest rate hikes in less than three years,” he told ConsumerAffairs.
And, then, there’s … El Salvador?
Gouran then pointed to a development that’s completely off most crypto investors’ radar.
“From a consumer perspective, the biggest news of the last few weeks hasn't been the price fluctuations of bitcoin but that a nation, El Salvador, has adopted bitcoin as a legal tender currency and, in fact, mandated that all businesses must allow bitcoin payments,” Gouran said.
El Salvador may not be known for groundbreaking moves, but Gouran says what the country is doing could be a turning point when it comes to cryptocurrency at the consumer level.
“Their choice of using the second layer, peer to peer ‘Lightning Network’ is also notable as it brings the transaction scalability found in traditional payments rails to bitcoin. A solution like lightning is crucial to making bitcoin suitable as a form of currency for use by consumers versus being an area of speculation for investors and gamblers,” he stated.