Bitcoin is the most popular decentralized digital currency with a trademark for being independent of any central issuer or authority controlling it. Even though many argued that Bitcoins would stand independent of the influence of economic dips, international wars, or drastic policy changes, they didn’t remain so stagnant. But with the wars, pandemics, and policy changes, Bitcoin also failed to remain unaffected. They also derive their value from people’s beliefs, skepticism, and policy changes. As the use of Bitcoins/cryptocurrencies becomes more mainstream, it will be important for both business owners and individuals to understand it better. This blog will look at different aspects of cryptocurrencies and what can be expected from them in the future.
Top 8 factors that determine the Rise and Fall of Bitcoin
The rise and fall of Bitcoin are influenced by many factors. Some of the core factors that determine its position in the market are given below.
1. Traditional finance
Bitcoin has little chance of winning without well-established Traditional finance that provides it with both maturity and security. The expectation that the US Securities and Exchange Commission would agree to a bitcoin exchange-traded fund in the future has made the bitcoin value climb up. But the fact that Bitcoin does not have any ties with conventional financial models is a plus. Even though cryptocurrency investors have limited or no knowledge of traditional finances, the two worlds are merging. And the fluctuations in the decisions about such merge are bringing fluctuations in the Bitcoin price as well.
2. Social Media
Social Media can change and sometimes give a big kick and fall to Bitcoins and other cryptocurrencies’ value. For example, the Tik Tok trend in July 2020 brought a huge surge in the Dogecoin price. Twitter Tweets by popular celebrities, entrepreneurs, and politicians are a frequent example we see about how Social Media can highly influence the prices of Bitcoin and control general BItcoin investors’ choices. A good example of the case is how Elon Masks’s tweet frequently pulls Bitcoin and Dogecoin prices up and down.
3. Other Media
The media finds it very important to report on the Bitcoin price and the various regulations it faces. This can cause the media to act for and against bitcoin pricing through its media coverage that can sometimes be real and sometimes exaggerated.
4. Production Cost and Bitcoin Mining
The bitcoin protocol allows for the creation of new bitcoins at a set rate. As miners process blocks of transactions, new bitcoins are added to the market, and the rate at which new coins are introduced is programmed to slow over time. A maximum of 21 million bitcoins will eventually be mined and will be almost completely mined by 2140. That supply level is expected to last for more than 100 years, as the bitcoin protocol allows for a steady release of new coins until the supply level reaches that point.
5. Supply and Demand of Bitcoins
Supply and demand have a big influence on the price of everything. It’s a matter of common sense that the price increases when there is more demand and decreases when supply decreases. Bitcoin has a specific number for how much of it can be mined or produced a year. When there are more investors in Bitcoin the supply can thus become limited and this can increase the price.
6. Number of Competitors
Bitcoin is not one of the ” few ” cryptocurrencies. Today there are other popular and equally valuable cryptocurrencies competing against Bitcoin The recent popularity of other cryptocurrencies has contributed to the increased volatility in the prices of Bitcoins. With the fall and growth of determines that influence other coins the demand for bitcoin falls and rises as an alternative option to invest and divest.
7. Political Risks
Political climate and risks can also affect Bitcoin prices. political instability policy changes, inflation, and any such uncertain situation can make investors find Bitcoin as a good investment to secure their wealth. Such investments can especially happen when there a country’s currency dips in value and people looks to move their currency to an alternative.
For example, the economic crisis of Greece has made its citizens move their wealth to Bitcoins wishing to protect their wealth. When Britain took the stand to leave Brexit, the price of Bitcoin rose due to an increase in demand.
8. International Regulation
Government regulations can definitely affect cryptocurrency and governments around the world are coming up with more regulations as its market continues to expand. Some governments are skeptical about the public turning to cryptocurrency and fear it opens doors for money laundering and criminal activities. Regulations taken by China, Japan, and South Korea had a crashing effect on Bitcoin prices. The confusing classification of Bitcoin by the United States lead to the public having confusion about United States Cryptocurrency regulations. It is a frequent practice now for governments to issue new regulations around cryptocurrency trading very often, which creates an environment of uncertainty for its investors.
The Bitcoin market has the potential to be very volatile. This makes it risky for those new to the currency. There are many factors that influence the value of Bitcoin. Many economists believe that the price of Bitcoin is determined by the market. A key factor in the price of Bitcoin is speculation. Speculation is a gamble with a higher risk. If you are new to the Bitcoin market, it is recommended that you study the factors that affect its value in depth.
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