Bitcoin is a digital currency that has grown in prominence in recent years. Driven by market forces, Bitcoin’s price fluctuates considerably from day to day, making it a volatile asset. Therefore, it is essential to consider a few things to understand better what underlies this volatility and how it impacts the overall Bitcoin price. Click this image below to start your bitcoin journey.
This cryptocurrency is not issued by any government and does not have a centralized monetary policy. Called mining, this activity also creates new Bitcoins from time to time. There are several direct and indirect factors behind fluctuations seen in the price of Bitcoin.
Supply And Demand
Every newly created Bitcoin is kept in a public ledger called the blockchain that anyone on the internet can access. Like gold, Bitcoin’s supply is relatively scarce and limited compared to mainstream currencies like Dollar or Euros. The growth of mining rewards provided for bitcoin mining has also been significant. At any given moment, the current supply and the demand of Bitcoin are used in the current value estimation.
Volatility
Another key factor responsible for Bitcoin’s price is its volatility. This volatility is driven by two sources, namely supply and demand. One of the most striking ways to see this volatility is when comparing how long it takes to transact. Because of the high fees involved in using Bitcoin as a currency, many users are wary of making fast transactions (due to the risk of overpaying fees). That has led to a corresponding lack of volume in bitcoin transactions, which drives up prices.
Rumour Effect
One more reason contributing to bitcoin price fluctuations is the so-called rumour effect. In other words, rumours are spreading across the internet faster than verified or refuted. These rumours include new product launches, partnerships and acquisitions, or even regulatory changes. Often, these rumour-based price movements are short-lived and don’t have a lasting impact on Bitcoin’s overall value.
Governments Stance
Government approval or disapproval can be another factor that drives Bitcoin prices up or down. For example, governments may choose to step in if they feel that bitcoin is being used by criminals or against national currencies through international transactions. Still, they could also give their stamp of approval to mainstream businesses interested in using bitcoin as a form of payment.
Similar to what we see with Ripple, an increasing number of people are participating in prediction markets where traders can bet bitcoins on the likelihood of certain events or occurrences. Traders can even place bets on the timing and way that one key variable would play a role in the price movements of bitcoin, like how much Bitcoin would increase against the dollar if Hillary Clinton became president.
Bitcoin Economy Value
In addition to being a form of payment, Bitcoin can also be seen as a store of value, similar to gold and other assets classes like real estate and stocks. Because of this, some investors may choose to buy bitcoins as a value store and hold on to them for future use.
Therefore, Bitcoin is simultaneously an asset and a currency. While many consumers don’t view it as an investment because of its price fluctuations, other investors watch the market closely and buy up bitcoins in anticipation of price increases.
Speculative Driving Force
One well-known price driver is speculative trading, which can drive prices much higher than the actual value. This means that people (and bots) purchase bitcoins, hoping that they will sell them at a much higher price at some point in the future. Bitcoin has been getting a considerable amount of media exposure in recent years, and with that exposure has come more people investing in cryptocurrency. Some of these investors are looking at Bitcoin to get richer quickly or trying to put the new technology into use for innovative solutions.
The total number of driving forces behind the price fluctuation of Bitcoin is quite large. A wise investor will look to consider all the significant facts before making any decision related to crypto trading.
