Bitcoin is a popular cryptocurrency best known for its random price movements. The value of bitcoin skyrocketed in the last month. Resultantly, many investors jumped into the crypto arena filling up their wallets with BTC. Those who couldn’t afford 1 whole Bitcoin took a resort in Satoshis or Sats (subdivisions of bitcoin). Masses think that bitcoin’s price movements are abrupt. However, this is not true. There are certain factors that cause the bitcoin’s price to surge or plummet.
Also Read: Things You Need to Know Before Investing in Bitcoin
A positive thing to mention here is that after every upward rally, BTC does keep some of the gains. For instance, Bitcoin was worth pennies in the initial years of its founding. After significant gains in 2017, its price went down but never reached the same level of valuelessness again. So people who say that bitcoin will go into oblivion just like it emerged out of it are just deluded.
Let’s take a look at factors impacting bitcoin’s price movement.
Demand & Supply Discrepancy:
The difference in demand and supply is one of the foremost factors driving assets’ price. When there are more buyers of bitcoin than its supply, the price naturally goes up. Here is how demand and supply inconsistency increases:
- The bitcoin supply is limited to 21 million. There are only going to be 21 million bitcoin ever. As more and more bitcoins are mined, the possible number of BTC diminishes.
- When companies overbuy bitcoin then the supply and demand also disrupt. In the month of November, Grayscale bought 55K bitcoin while miners only added 27K into the system. As a result, the price of bitcoin took to the air.
- The process of mining is getting more difficult and power-consuming with passing time. Consequently, the creation of bitcoin takes added effort.
- Halving events reduce the reward of mining to half. For instance, before the halving event of 2020, a miner would receive 12.5 bitcoin following the verification of a block of information. However, now the reward is lessened to 6.25 bitcoin.
The above-mentioned points summarise the reasons for decreasing supply and increasing demand for bitcoin. The price is deeply impacted by the widening gap. Hence you can predict bitcoin’s price by keeping in view the demand & supply of BTC.
Trading Volume and Bitcoin’s Price:
Bitcoin’s trading volume is lower in comparison to fiat currencies. This is partly because many countries don’t consider bitcoin a legitimate form of money. When there is a small number of people buying or selling an asset then big whales (big traders) can change or manipulate the price with a single move. Additionally, some big institutions like currency exchanges can cause the price to fluctuate with their overbuying or overselling of BTC.
Many financial spectators criticize the crypto market for its volatile behaviour caused by dependence on a few big investors. Nonetheless, this scenario is changing with a good number of small investors entering the market. But, for some time it will still be at the mercy of 1000 people owning 40% of crypto assets.
Governments and Regulations:
The nature of cryptocurrency is yet to be understood. Is it an asset class, security, or a commodity? Due to the open nature of blockchain, governments see bitcoin as a threat. Many countries are trying to regulate bitcoin while a few have banned the use of crypto altogether. Investors’ trust dwindles every time a new regulation is brought in. In consequence, the price moves with the market’s sentiments.
Legal and governmental matters are external factors causing a disturbance inside the crypto market. They have a significant impact on bitcoin’s price in the long run. For a stable future of crypto, governments need to make peace with bitcoin’s operations.
Bitcoin’s price is dependent on both internal and external stimuli. The crypto industry is still in its infancy. So there are a lot of ways shady actors can manipulate price from the inside. Furthermore, the question of legitimacy gives governments a reason to discourage investments in bitcoin. Hence crypto assets are highly volatile and in search of setting their feet on the ground.
2020 has been the best time for bitcoin. Its price reached a peak of $19K USD. Besides, the market cap was the highest since ever this year. This has encouraged many small investors to buy a few Sats. So, we hope that 2021 is going to be a better and well rounded year for bitcoin.