In this article today, we will be answering these questions and giving you 9 factors that influence Bitcoin price. Let's get to it. So many factors are to be taken into account when discussing the reason for the change. Some of the factors include;
1. Supply and demand
Bitcoin is not centralized; therefore, it isn't a company that chooses to release new coins into the market. Since bitcoin is decentralized, the bitcoin prices should correspond to the coin's demand and supply. Do not worry about it, and we will talk more about this.
We mean by demand and supply that when the need for the coin is high, and there is an inadequate supply of bitcoin, the bitcoin price will be increased due to the scarcity of the coins.
This will be vice versa when there are low demand and high supply (the bitcoin price below). Supply and demand is the main driving factor when talking about the changes in crypto prices.
Any other factor that affects the demand and supply of bitcoin will affect the price, either negatively (price reduction) or positively (price increase).\
Every year, the amount of new bitcoin mined is fixed, and this rate is created to reduce overtime.
This has seen a slow production, which has dropped from 6.9% (2016) to 4% (2018). If you understand the concept above, the supply reduces, and as people always want to invest in bitcoin, this would mean higher demand, leading to scarcity and an increase in the bitcoin price.
Bitcoin mining is also set to stop when 21million coins are mined/ in circulation, reducing the supply. In 2019, 18.1 million coins were in circulation.
Yes, that fear of the prices about to get jacked up because 21 million doesn't seem hard to achieve in 2020 should be present, but the thing is, that number won't be reached until 2140, and this is due to the adjustment of block rewards.
2. Creation or the presence of competing coins
Previously, not many coins were known, and bitcoin had unrivaled domination of the crypto space, and this led most people or investors with just it as an option.
The creation of other cryptos such as litecoin, ethereum, etc., has given investors many opportunities to diversify, reducing the demand for bitcoin, and reducing bitcoin price.
3. Legal issues in countries
As bitcoin and other cryptocurrencies are rapidly becoming more common, regulators have questioned how these financial assets should be categorized.
While the Securities and Exchange Commission (SEC) classifies cryptocurrencies as securities, the US does. Bitcoin is considered to be an asset of the Commodity Futures Trading Commission (CFTC).
Despite rising market capitalizations, the mystery that regulators are setting the rules for cryptocurrencies has generated ambiguity. Besides, many financial instruments that use Bitcoin as their underlying currency, such as ETFs, options, and other derivatives, have been deployed on the market.
Prices can have a double effect. First, it offers Blockchain entry, increasing interest to consumers who cannot afford to buy a real Bitcoin.\
Second, market volatility can be minimized by making betting feasible through the use of substantial capital by institutional investors who conclude that bitcoin futures are overvalued or undervalued.
4. Cost of mining
Mining bitcoin costs a lot, and this ranges from hardware to electricity to compensation of the miners. We all know what mining is, and as new miners join every day, the harder it is to mine.
The bitcoin protocol only allows one block of bitcoins to be mined every 10 minutes and since the number of miners equates to the difficulty level and lots of miners mean, it will be challenging and lead to more money spent. This can cause an increase in the bitcoin price.
5. Futurity
The market is expanding as a whole, but the future of cryptocurrency remains unclear. It's almost impossible to predict the price of each cryptocurrency, but the latest Bitcoin strength indicator clearly shows that Bitcoin should be here for at least the next few years.
We can predict an increase in price and recovery with added certainty. Bitcoin has produced tremendous opportunities and support and has not yet achieved its maximum potential. Bitcoin has come so far in the last 10 years, so it's essential to see where it will be and what will be worth in the next 10 years.
6. A country's political events
Since bitcoin is decentralized, a country's political events can affect the bitcoin prices. The economy of a country affects the currency of that country.
Sometimes it might be so bad as recessions, which would push more people to put their money in something more stable, such as cryptocurrencies, which can increase prices.
Let's take a recent example, the November 2020 US election. There has been a corresponding increase in prices.
A reason could be that people are anticipating a recession in the economy and are switching to a more safe way of keeping their money intact.
Decisions are reached in the bitcoin community occur by consensus, and this is not always the best because if an agreement is not reached. It could lead to severe problems, as seen in 2017, when there was a disagreement about the block size. This wasn't resolved and led to the splitting /creation of a hard fork called Bitcoin Cash. If this occurs, it will affect the bitcoin price negatively.
8. The exchanges it trades on
Just as equity investors trade stocks over indexes such as NYSE, Nasdaq, and FTSE, cryptocurrency investors trade cryptos over Coinbase, GDAX, and other exchanges. These sites allow investors to trade cryptocurrency/monetary pairs compared to existing currency exchanges (e.g., BTC/USD or Bitcoin/USD dollar).
The more widely known an exchange becomes, the faster and more efficient the network effect can be generated for additional participants. And it can set rules governing how other currencies are added by capitalizing on its market influence.
The release of the Single Future Token Agreement (SAFT) framework, for example, is intended to define how securities regulations can be complied with by ICOs. Bitcoin's presence in such an exchange means a degree of regulatory conformity in which cryptocurrencies operate, regardless of the legal area.
9. Bitcoin Halving
Also, bitcoin's payout halving leads to cryptocurrency rate volatility. Compared to the fiat money that can be inflated by the federal government, Bitcoin has a fixed sum of 21 million. The goal is to get half the price of Bitcoin mining when 210,000 blocks are produced. Since this was adopted, the payment has dropped from 50 BTC to 12,5 BTC for two years. That's the result. This happens, on average, every four years.
Due to Bitcoin halving, the mining industry has a significant impact. The hash rate decreased after the first and second half of the year but soon recovered. In 2018, as Bitcoin's price fell, many miners wanted to quit, and a few mining pools closed down.
This underlines the impact of Bitcoin's shift in prices on the industry. However, this says that Bitcoin seems to be more widely known today. The hash rate has begun to stabilize in early 2019, inciting an encouraging trend.
Source: medium.com
Conclusion
There are peer-to-peer markets with several payment options that will allow you to retain the value of your money if you're too scared to keep some cryptocurrency. They're allowed to buy bitcoins with cash, and you can exchange them for gift cards or some other payment option if you're too scared to give them up as bitcoins.
Don't worry if the price is going to fluctuate, and you should be all right. Reflect on all your choices to make sure they stick to your investment strategy right from the start. Keep an open mind, and do not make the most of your feelings.
