Considering the recent events in the cryptocurrency world, you may be wondering why the price of Bitcoin is so volatile? How can the price of Bitcoin rise by over 15% in such a short space of time? How can the price of a cryptocurrency rise from $1,000 to just under $20,000 in less than a year?
Clearly, there are no simple answers to these questions, and while someone with a degree in economics might well say “it’s all about supply and demand,” there’s more to the story of why Bitcoin’s price fluctuates so much.
It's still something new.
For starters, it’s important to understand that Bitcoin is still a very new cryptocurrency, with a new concept behind it. Although Bitcoin was first launched in 2009, it didn’t gain much popularity until 2017. This also means that Bitcoin is still owned by a small amount of people. According to this report, 4% of people who own Bitcoin own about 95% of the cryptocurrency.
Buying and selling Bitcoin
In theory, every transaction involving the Buy Bitcoin, whether we are talking about fiat currency or another cryptocurrency, tends to increase the price of Bitcoin. Likewise, any transaction involving the sale of Bitcoin, no matter its size, can very well cause a slight downward trend.
The limitations of the platform
Those familiar with the issues in the cryptocurrency world will know this, but Bitcoin has a characteristic inability to provide users with cheap transactions due to its limited block size. This limitation may be a very important reason why the price of Bitcoin fluctuates so much.
News and media
Right off the bat, it’s impossible to accurately predict what impact news announcements have on the price of Bitcoin. However, some patterns have been observed, one of which is that major news announcements often coincide with some price movement in the Bitcoin market. News can both increase and decrease the flow of demand from people entering or leaving the ecosystem.
The most interesting aspect of how the media affects the price of Bitcoin is the fact that negative news also seems to have a noticeable effect, causing the price to drop. There have also been some cases where negative publicity has helped popularize cryptocurrency further.
Technological changes
Since Bitcoin is such a volatile currency, it is no surprise that even the smallest internal changes can affect its price. Just imagine how many aspects can change once Bitcoin announces a new technology on its platform. A relevant example is when Bitcoin integration was added to PayPal’s system, triggering or renewing interest in the currency.
Regulations, government decisions and political risks
You may hear that some governments are adamant about banning Bitcoin. The reasons behind this move are numerous. Since Bitcoin is not a fiat currency, it is not bound by any government regulation. Drastic changes in the price or Bitcoin have been observed whenever a government imposes a restriction or a ban on the use of Bitcoin.
Some countries (Japan being the most prominent example) have accepted Bitcoins as legal tender. This kind of legitimization has led to a clear increase in the price of Bitcoin.
Another aspect worth noting is the political risk that is often associated with national currencies. In short, anything from an economic crisis to unrest over a national event can have very large effects on the price of a currency, including Bitcoin.
Interest of institutional investors
Another important factor that determines the price of Bitcoin is the interest of institutional investors. As more and more institutions accept cryptocurrencies and design new successful products based on them, we are bound to see an increase in the price of Bitcoin.
Asian interest rates
Asia is definitely a very important investment area for all cryptocurrencies, not just Bitcoin. According to a report, although some Asian countries have imposed strict regulations and bans on cryptocurrency, this has not stopped several investors from continuing to invest in Bitcoin.
Conclusion:
As expected, there are a wide variety of factors that can potentially affect the value of Bitcoins, and this is by no means a complete list. We hope this list helps you better understand Bitcoin’s price fragility and ultimately make better, more informed decisions when it comes to invest in Bitcoin
.