In 2010, 1 Bitcoin was worth less than $0.01. By 2013, it hit the $1000 mark. In 2020, the bitcoin price almost hit the $50,000 mark. Today, the price of 1 Bitcoin hovers about in the $30,000 region.
What is responsible for the instability of the bitcoin price? This is a valid question in the minds of potential crypto investors. Read on, and get more knowledge about what controls and regulates the price of bitcoin.
Major Factors That Affect Bitcoin Price
Law of Demand and Supply
As with every other commodity on the earth, the most important factor that determines the price of is “Demand and Supply”. Increased demand leads to increased price while decreased demand causes a fall in price.
In essence, as more investors acquire bitcoins, you should expect the price to increase. For example, from September till December 2020, a group of investors bought half a million bitcoins and this increased demand caused the bitcoin price to cross the $20,000 mark.
Consequently, when there is an increase in price of bitcoin, investors want to cash out leading to reduced demand and a drop in price.
This is the basic factor responsible for the volatility of the bitcoin.
Bitcoin Mining
Basically, for those who don’t know, the process of producing bitcoins is termed mining. Bitcoins are mined by solving complex mathematical problems.
The process of mining bitcoins also influences the bitcoin price. How so? An increased supply of mined bitcoins to the market that is not commensurate with an increase in demand propels a dip in the price of the bitcoin.
Year after year, as the number of miners increase, there is increased mining competition and the mathematical problems become even more complex leading to reduced mining rate. This strategy drives up the price of bitcoin as every year, there is a reduction in the rate at which bitcoin is supplied while there is an increase in demand for the currency.
Bitcoin mining also affects the price of bitcoin due to the process of mining a bitcoin. The cryptographic mathematics problem is given to all the miners, and the first to solve the problem is rewarded with a new block of bitcoin. Only one block of bitcoin can be mined every ten minutes. As more miners join in the competition, it becomes more expensive to solve the problem within the ten minutes interval.
Other Cryptocurrencies
If Bitcoin was the only digital currency around, maybe and just maybe it’s price would be hovering around the $100,000 region.
However, bitcoin is not the only cryptocurrency around and this diversity creates a level playing field for investors. Bitcoin still dominates the crypto scene due to its heavy worth but with the rise of others like Ethereum, Litecoin, XRP, etc. there has been a sort of cap on the height the price of bitcoin can attain.
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Government Regulations
First of all, Bitcoin is a decentralized platform- meaning it isn’t regulated or controlled by any specific government in the world.
Secondly, how to classify bitcoin has been an issue for most governments of the world hence they are unable to come up with regulations for the currency.
However, regulations from country to country will apply directly to the investors who are citizens of these countries and this can impact the bitcoin price.
The rate at which government regulations can impact the price of bitcoin is dependent on how much bitcoin investments come from that country.
Influence of Media
Either via social media, or cable news, media has been a strong influence on the price of crypto currencies.
Media has been instrumental in helping people understand how Bitcoin works and through media publicity, bitcoin has attracted lots of investment.
On social media, bitcoin traders form communities where they make decisions on collective actions to take that will impact the market.
Media (digital and traditional) have strongly influenced bitcoin price volatility as with other digital currencies too.
Final Words
As a bitcoin trader, it is expected of you to observe not just the charts but the market itself. You can gain foresight of the direction the market is going to be heading by observing the crypto community on social media. Also, pay attention to news about governments that matter.
In essence, stay informed. It is the best way not to get deformed as a crypto trader.
