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Daily Mirror
Daily Mirror
Business
Sam Barker

Why do Bitcoin prices rise and fall? Reasons range from Elon Musk to Google ads

The price of Bitcoin and Ethereum rose sharply today - but what makes famously volatile cryptocurrency prices move around so much?

The price of one Bitcoin, the biggest digital currency, was £27,071 at 9am this morning and is £27,971 now - a rise of 3.3%.

Ethereum, the world's second-biggest cryptocurrency, was £1,776 this morning and £1,874 now, up 5.5%.

Traditional investors would look at this sort of daily rise with complete shock, but this sort of rise and fall is not unusual for these online currencies.

Investors used to major financial indices, like the FTSE 100, are accustomed to them moving by less than 1% a day. So what makes cryptocurrency so volatile?

The answer is: almost anything, from financial regulation to tweets from Tesla chief executive Elon Musk.

Earlier this year Elon Musk put the word 'Bitcoin' in his Twitter biography and the price of the currency rose by 20% (Bloomberg via Getty Images)

Today for example, Bitcoin seems to be rising because of news that Google will allow cryptocurrency adverts.

For example, it will now be possible to advertise cryptocurrency exchanges and wallets on the search engine - though adverts will be vetted by Google.

Because Bitcoin is so dominant, what happens with its price tends to be mirrored by its smaller rivals, like Ethereum.

But Ethereum may also be rising in price because it is due a major update tomorrow, known as the 'London hard fork'.

This will eventually restrict the amount of Ethereum available. Analysts can't decide if it's a good or bad thing for the cryptocurrency, but investors have reacted positively.

Other common reasons for cryptocurrency prices rising are because of tweets from famous investors such as Elon Musk.

Earlier this year Musk put the word 'Bitcoin' in his Twitter biography and the price of the currency rose by 20%.

But the price of cryptocurrencies can fall just as easily as they rise.

Last month cryptocurrency prices took a dive because regulators around the world started getting tough on the digital currencies.

China in particular launched a major attack on cryptocurrencies, with vice-premier Liu Hu saying the country would "crack down on bitcoin mining and trading" .

The country's central bank put out a statement saying no Chinese financial companies should have anything to do with cryptocurrencies.

Also last month, the UK's Financial Conduct Authority (FCA) watchdog banned the world's biggest cryptocurrency exchange , Binance.

Turning back to Elon Musk, Bitcoin's price also fell last month because electric car maker Tesla abandoned decisions to take payment in the currency.

In February Tesla said it would accept Bitcoin. The company's shares hit a record high of $64,000 in April, before Tesla did a U-turn in May for environmental reasons.

The price of the digital coins also rise and fall due to social media trends and the news.

Bitcoin's popularity spawned many imitators, and there are now more than 4,000 digital coin alternatives.

What are the risks of investing in cryptocurrencies?

Cryptocurrency is not regulated in the UK, unlike most other financial products.

The Financial Conduct Authority (FCA) watchdog does monitor crypto, but only to prevent money laundering or funding terrorism.

That means if you put money into anything to do with crypto and lose it you will probably never see it again.

Many other financial deals are regulated by the FCA, meaning your money is protected up to £85,000 if the company goes bust or your money is stolen somehow.

This is thanks to the Financial Services Compensation Scheme (FSCS), a fund financial firms pay in to.

You can check on the FCA or FSCS websites to see if a company you are interested in is regulated and safe to deal with.

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