Understanding Major Bitcoin Price Movements: A Beginner’s Guide

The cryptocurrency market’s volatility can provide investment opportunities, but may also pose significant risks. Understanding the catalysts of major price movements is therefore crucial for informed decision-making when it comes to making investment decisions.

Here’s a beginners guide to why bitcoin’s price spikes and plunges, as well as historical price movements.

Before we get started

This article is provided as educational material and is not legal or financial advice. We encourage everyone to do research on any assets they choose to interact with. You can choose to buy, sell, swap, or hold Bitcoin using Trust Wallet, but again, we encourage you to always do your own research.

Price spike: A substantial upward movement of BTC

Bitcoin’s price has historically been known to rise substantially and rapidly. A sudden and significant increase in the cryptocurrency’s price is usually attributed to a variety of factors, such as positive market sentiment, news developments, or increased adoption.

Price plunge: A substantial downward movement of BTC

The opposite – sharp declines in the price of bitcoin within a short period – has also been observed. Such downturns may arise from multiple factors such as negative market sentiment, unfavorable news or events, decreased adoption, or selling pressure from large investors.

During such events, investors who believe in Bitcoin’s long-term potential may see an opportunity to buy bitcoin at better rates.

What triggers major Bitcoin price movements?

Market demand and supply

The interplay between the demand and supply of bitcoin can drive meaningful price movements in bitcoin. If demand exceeds available supply, prices may increase. Conversely, if there is an oversupply of bitcoin or a lack of demand, prices are likely to decline.

This rings true for other cryptocurrencies. Market demand and supply are influenced by a wide range of factors, such as overall market sentiment, regulatory changes, or technological advancements. As such, it’s common for prices to be affected by one or a combination of factors, as discussed below.

Technical Factors

Technical factors, such as trading volumes, market liquidity, price support levels, and resistance levels can affect price movements. Technical analysis and trading patterns can sometimes trigger buying or selling actions, leading to price surges or falls.

The arrival of BTC futures in 2018, for example, was a technical factor that significantly impacted bitcoin's price. When BTC futures were introduced, it transformed the market structure by offering a new vehicle for financial institutions and individual investors to take both long and short positions in bitcoin. This shift allowed investors to better hedge their risks and potentially profit from bitcoin's price volatility without directly buying or holding the cryptocurrency.

BTC futures attracted new market participants, such as institutional investors, who had been hesitant to enter the crypto market due to regulatory concerns or high volatility. This influx of new traders contributed to an increase in trading volumes and affected the demand for bitcoin, which in turn influenced its price.

BTC futures, being derivative products, derive their pricing from the underlying asset, in this case, bitcoin. The trading activity of futures, especially at high volumes, can potentially influence the spot price of the underlying asset by generating arbitrage opportunities for traders. When traders exploit these arbitrage opportunities, it impacts bitcoin's price.

News and Events

Major news events, regulatory announcements, or government actions related to cryptocurrencies can have a profound impact on bitcoin's price. Positive news, such as adoption by major institutions or countries, can lead to spikes, while negative news, like regulatory crackdowns or security breaches, can trigger declines.

News of scams and hacks can also slow down the mainstream adoption of cryptocurrencies by businesses, organizations, and governments. If an important event raises concerns about the security of cryptocurrencies, it may discourage these entities from integrating cryptocurrencies into their operations, indirectly affecting the BTC price.

For instance, the US Securities and Exchange Commission's (SEC) approval of Bitcoin ETFs was followed by a sizable price increase. Apart from increasing Bitcoin’s legitimacy, the SEC's approval of Bitcoin ETFs could have contributed to improved accessibility and exposure, and positive market sentiment – factors for higher demand and therefore a price surge.

SEC’s actions impact not just Bitcoin, but the entire crypto industry. Learn more in our Understanding the SEC's Role in Crypto: A Beginner's Guide blog.

Market Sentiment

Like news and events, market sentiment plays a crucial role in influencing bitcoin's price. Positive sentiment driven by optimism can lead to buying and price increases, while negative sentiment – fear, uncertainty, and doubt (FUD) – can result in mass sell offs and subsequent price declines.

The Fear and Greed Index is a widely used market sentiment indicator that reflects investors' levels of greed or fear. Higher index values indicate extreme greed, potentially leading to inflated prices and buying frenzies. Lower values indicate extreme fear, which may trigger selling and market downturns.

Extreme fear or greed in the index can have a cascading effect, amplifying market behavior and potentially causing drastic price movements.

Market Adoption

A significant increase in bitcoin adoption by individuals, businesses, and financial institutions can generate a surge in demand and trigger major price movements. If more people become aware of bitcoin's potential benefits and embrace it as a store of value or medium of exchange, it can contribute to large price upswings.

The reverse is also true; limited adoption or waning attention in Bitcoin can put downward pressure on the price, causing a sharp price decline.

Market Manipulation

Some covert, coordinated schemes have been known to artificially inflate the price of bitcoin. Market manipulators could spread positive information – creating a FOMO (fear of missing out) phenomenon – to attract more buyers and drive prices up. If this scheme gains traction, it could result in significant upward buying pressure, causing bitcoin’s price to spike.

On the other hand, to shake investor and trader confidence, schemers can spread negative rumors about Bitcoin. Aimed at instilling FUD among market participants, these rumors can lead to a phenomenon known as ‘panic selling’, where investors hastily sell off their bitcoin holdings in response to growing concerns. This mass selloff can further drive down the price of bitcoin, exacerbating the negative sentiment and potentially causing a significant decline in its value.

The paper titled "Is Bitcoin Really Un-Tethered?" authored by John M. Griffin, a finance professor at the University of Texas, and Amin Shams, a graduate student from the same university, revealed their findings regarding the potential impact of Tether on the price of bitcoin. They observed that the trading of Tether provided significant price support for bitcoin and had substantial impacts on its price movements.

Historical Bitcoin Movements

Since Bitcoin's inception, significant events and factors have contributed to drastic price movements. Here are some of Bitcoin's significant ups and downs:

1. 2013 Bull Run: In April 2013, bitcoin's price increased from $13 to $230, driven by increasing demand and supply dynamics, market sentiment, and positive news.

2. Silk Road Shutdown: In October 2013, the shutdown of the dark web marketplace Silk Road resulted in a significant price drop, from $145 to $109.

3. China’s Crypto Crackdown: In 2021, China announced its stance on cryptocurrencies shutting down exchanges within the country. When the news broke, bitcoin’s price experienced a sharp decline, dropping to as low as $30,202 per coin, following its opening at around the $40,000 level.

4. 2017 Bull Run: From October to December 2017, bitcoin experienced an unprecedented price surge, breaking multiple price records and reaching an all-time high of nearly $20,000.

5. 2020-2021 Global Pandemic: The COVID-19 pandemic caused widespread uncertainty and financial instability, resulting in bitcoin's price dropping from $10,000 to $5,000. However, it quickly bounced back and reached a new all-time high of $60,000 in March 2021.

To find out more about this impressive price surge, read our Understanding Bitcoin (BTC) Bull Runs: A Beginner's Guide.

Conclusion

Whether upwards or downwards, it’s clear that bitcoin's price movement is determined by a combination of factors. As a result, predicting bitcoin's price movements with certainty can be challenging. Investors should always exercise caution and conduct thorough research before making investment decisions.

Ultimately, successful trading and investing involves a combination of historical analysis of price movements, continuous monitoring of market conditions, and risk management strategies – including finding a secure way to hold your bitcoin.

Opting for a trusted self-custody wallet like Trust Wallet provides you with the convenience and peace of mind to securely buy, hold, and exchange your assets.

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