What Moves the Price of Bitcoin?
Over the past few years, Bitcoin has become one of the talks of the town. More and more people are developing an interest in the said cryptocurrency, and some have plans to invest in it. To do this, we recommend regulated and beginner-friendly trading platforms and exchanges such as bitqt-app.io. Well, this might be due to the increasing value of Bitcoin in the market, especially when it hits an all-time high in April this year.
Amidst Bitcoin’s popularity, it still remains a subject of speculation by many. One of the reasons why they might criticise the said cryptocurrency is due to its volatility.
What is volatility? This word always comes along with cryptocurrency. Volatility is the tendency for a certain price to change rapidly. It is also known as unpredictability or uncertainty. This word is one of the technical jargon in the stock market as well as cryptocurrency. The higher the volatility, the higher the risk. Market prices could increase or decrease from time to time.
What moves the price of crypto?
Given the ups and downs of crypto’s value, there are several factors that contribute to the movement of its market price. Here are some of them.
Supply and Demand. Fiat currency is known to be government-regulated, whereas there is a specific amount of money to be circulated. This can be done through discount rate adjustment or engagement in open-market operations. These options enable the central bank to move the exchange rate of the currency.
Bitcoin’s supply is impacted by these two factors. First, new bitcoins are created in the market, and the protocol allows these new cryptocurrencies to be established at a fixed rate. As these bitcoins were used by miners, its system allows it to have a rate that will slow over time. This will lead to an increase in bitcoin’s demand at a faster rate than the increase of its supply, which may drive up the value or price of bitcoin in the market. Block rewards that are offered to miners also intervene with Bitcoin’s circulation growth, causing it to slow down. In the cryptocurrency world, this is referred to as artificial inflation.
Secondly, Bitcoin has a limited supply. Capped at 21 million, Bitcoin will no longer be mined or create new ones once this number is reached. When this number has been exhausted, this may affect its value in time. However, this may be still out of reach as predictions say that the last bitcoin may be mined in the year 2140 or later.
Competitors. Few years after Bitcoin’s creation, several cryptocurrencies have also emerged. Though Bitcoin is considered the first and most popular, there are over a hundred tokens in the market that offer features that are not present in the original currency. These are called altcoins – Bitcoin’s closest competitors. Examples of altcoins are Ethereum(ETH), Binance (BNB), Cardano (ADA) etc. The tight competition among these cryptocurrencies keeps the price down. Fortunately, Bitcoin remains the most highly visible and its value stood high among the law.
Production Cost. In order to mine or produce a single token, Bitcoin relies on computers or devices which consume electricity. This issue is one of the most criticised about the said cryptocurrency. Bitcoin works by using computers and devices to solve complicated mathematical problems or algorithms. However, despite the criticisms and attacks, Bitcoin has been trying to work on a more energy-efficient way of production. In fact, a study says that every block that is mined is equivalent to 10 minutes.
There are several factors that move the price of Bitcoin. These elaborated examples are just a few of the major reasons why the said cryptocurrency remains volatile to this day.
To sum up, the value of Bitcoin is attributed to its supply and demand, competition and cost of production. Other price-determining factors include government regulation and currency exchanges availability.
Risk Note: As mentioned in the article, cryptocurrency is a risky investment. Although some investors consider it an asset with intrinsic value still, its volatility will make you win big or lose hard.
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