Bitcoin has become a fascinating phenomenon in the financial and investment world, increasingly attracting investors from all corners of the globe. It is one of the most profitable asset classes, outperforming several traditional assets. Like other digital currencies, Bitcoin is a highly volatile asset. However, it has historically demonstrated constant price growth to become the most prominent crypto.
Bitcoin’s stellar performance amidst ongoing volatility has many people wondering what drives its price. Various factors influence Bitcoin’s price movements. The following article explores the main drivers of Bitcoin price.
Experts argue risk appetite is one of the critical drivers of Bitcoin’s value. As hinted above, cryptocurrencies such as Bitcoin are risky investments. Investors often rush to sell risky investments whenever they get nervous (Look up the Fear and Greed index for more info on this). Consequently, they tend to buy more assets whenever the market conditions seem healthy.
Cryptocurrencies respond to the dynamics of risks. Various reasons can stir up investors’ perceptions of Bitcoin. For instance, increasingly negative comments about Bitcoin make it look riskier, impacting a quick sell-off. On the other hand, positive comments drive the demand for Bitcoin, pushing prices higher.
Supply and Demand Economics
Supply and demand economics play a critical role in determining the prices of goods and services. Bitcoin’s price movements also follow a similar pattern. However, Bitcoin is unique because it has a limited supply cap. The Bitcoin algorithm stipulates only 21 million tokens will ever come into circulation, with about 18 million currently circulating.
Bitcoin also undergoes halving, which reduces the number of rewards issued to miners by half every four years. The limited supply and halving are vital factors that impact Bitcoin’s scarcity amidst increasing market demand. Bitcoin’s diminishing supply and growing demand enable it to retain a higher purchasing power over time, driving prices upward.
Like any other market economy, a product with limited supply and higher demand always attracts more excellent value. According to most analysts, Bitcoin price will undoubtedly set new all-time high records in the future.
Unlike traditional assets such as fiat currencies regulated by governments, Bitcoin is decentralized. Thus, it is not subject to political or institutional influences. Instead, its prices move based on public perceptions. That means news and developments impacting the entire crypto industry or some sectors of the industry influence Bitcoin’s price.
Government regulations and crackdowns are excellent examples of the industry-wide factors that drive Bitcoin price. For instance, news of government institutions such as https://bitcoin-loophole.live/ cracking down on crypto businesses often negatively impacts Bitcoin prices. Such developments portray a negative perception to the public, sending many investors into a panic mode.
Concerns about overreach could drive the market downwards, with significant impacts on Bitcoin price since it is the most prominent crypto. On the other hand, good news from regulators and other institutions would lift the entire crypto industry. The crypto market’s reactions to China’s ban on crypto trading indicate how negative perceptions could impact Bitcoin and the industry.
Technical analysis requires less-efficient markets to operate. According to a U.S Federal Reserve study, technical analysis in the stock markets worked in the 1970s and 80s but reduced in the 90s due to improved information flows. Experts argue Bitcoin mimics the inefficient systems of the 1970s. It trades on multiple decentralized exchange platforms, making it challenging to determine Bitcoin’s exact price at any given time. Besides, some investors accuse market makers of manipulating prices. Nevertheless, those factors make trend-following one of the best tools to track Bitcoin prices.
Various factors influence Bitcoin price. However, these are the most influential drivers of Bitcoin prices.
Disclosure: This article is for entertainment and educational purposes only. I am not a financial advisor and you should always do your own research and consult a qualified financial advisor before making big decisions with your money as capital may be at risk.