Crypto For Beginners: 4 Key Factors Influencing The Price Of Bitcoin
Cryptocurrency is the latest buzzword. It can seem complicated, but once you get past the hype, you can understand its underlying principles. There are many types of cryptocurrencies, and Bitcoin is the most popular and widely used.
The currency is highly volatile, making it difficult to determine how much value a given bitcoin will hold. To mitigate volatility, make sure to spread your money across different currencies and invest only what you can afford to lose. It's also important to know many basic concepts regarding cryptocurrency like Bitcoin halving, pricing, how to purchase, and how to invest.
Another essential piece of information you need to know before investing in Bitcoin is the key factors that affect its price. Here are some of the factors you need to know:
- Demand
Since Bitcoin's supply has been dwindling, the demand for it has increased. Aside from the supply, the demand for Bitcoin is based on geopolitical and economic considerations.
Also, with many people learning about Bitcoin and using it as an investment, its demand increases. Other factors that influence the price are its adoption by the general public. The media can educate the public on the importance of the currency and its usage. If the media reports on the currency's value, there’ll be a rise in demand. This will lead to a rise in the price. As a result, Bitcoins will be more popular than ever.
- Supply
One of the factors that play an essential role in the pricing of Bitcoin is the supply. In economics, if an asset or good is scarce, it’ll likely have a price that’s higher. If it’s available in large volumes, it’ll have a low price.
The availability is one of the most critical factors that determine the price of a Bitcoin. Unlike other currencies, Bitcoin isn’t issued by a central government. There’s no centralized authority that controls the supply of bitcoin, making it highly unpredictable. This means that the price of a bitcoin can fluctuate drastically.
Over the years, the supply of Bitcoin has declined because the cryptocurrency's regulation enables new Bitcoins to be developed at a fixed rate. Bitcoin halving happens every four years. This causes a bump in the prices, and it continues to do so because supply has decreased.
- Competition
Although Bitcoin is one of the most popular cryptocurrencies today, there are other tokens available for purchase. In 2017, Bitcoin's market share was said to be around 80%. However, in the last year, Bitcoin's market share has decreased to 50%. This is because there’s an increased awareness of the capabilities of cryptocurrencies. That's why the creation and production of new tokens have slowly emerged.
For instance, Ethereum's Ether has been one of the reputable competitions of Bitcoin. Many investors saw its potential and have increased its market share by almost 18%. There are also new emerging tokens like Ripple's XRP and Binance's BNB.
With the new emerging tokens most prominently Rapidz the demand for Bitcoin is affected. When there’s less demand for the token, prices will significantly be reduced.
- Regulations
Due to the growing popularity of Bitcoin and other tokens, regulators are now debating if they need to create rules and regulations regarding the use and the trading of these cryptocurrencies.
The regulation also depends on the country. For example, in the US, the Securities and Exchange Commission (SEC) classify tokens as securities, but the Commodity Futures Trading Commission (CFTC) considers them a commodity. For other countries like Australia, there are still no clear rules or regulations regarding the use and trading of cryptocurrencies.
How do regulations affect the pricing of cryptocurrencies like Bitcoin? If countries of financial institutions develop riles that become too stringent or repressive, the pricing of cryptocurrency will significantly drop. However, if the rules are favourable to the industry, it can catalyse further growth, increasing demand for them.
Bitcoin's policies can also affect the price. Its core developers set Bitcoin's policies. If they choose to release modifications that could alter the volume of Bitcoin available in the market, it can affect its price. Any disagreements between the developers can also cause the token to be highly volatile and its future direction can be affected as it's also closely watched by its investors.
Final Thoughts
If you want to earn cryptocurrency online, you need to be aware of these factors. Because of its limited supply, Bitcoin is a highly volatile commodity. Its price is determined by supply and demand. When the supply of a certain commodity is low, the price will increase. But when the supply of a particular commodity decreases, the price of another is likely to fall.
It's also affected by other factors like the emergence of other cryptocurrency tokens. The price of Bitcoin can be affected if governments or financial institutions decide to regulate the volume and the use of these tokens.
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