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What Influences the Price of Bitcoin?

Satoshi Nakamoto revolutionized the fintech world with the creation of Bitcoin. His intention was to create a new private online payment system that would change the way we make transactions online and in general throughout the world.

However, Bitcoin has become much more than a form of payment. For many, Bitcoin is an investment opportunity, and it’s something people can speculate on due to its high volatility.

So what are the main influences today that drive the price of Bitcoin up or down? Well, in this extensive guide, we’ll take a deep look into what creates the price changes with Bitcoin and potentially how you can predetermine these changes, too.

Let’s begin!

How Bitcoin Price Is Determined

The first thing we should look into is how the price of Bitcoin is determined. It’s all about the basic economics of supply and demand.

Now to explain things further, let’s assume that Satoshi Nakamoto is male for all intense and purposes. In reality, it could be a woman or a group behind the creation of Bitcoin.

Satoshi Nakamoto understood fundamental economics and he used this knowledge to build a scarcity element into the fabric of his new currency. By doing this, he allowed his currency to be vulnerable to the market forces of supply and demand in a significant way.

So in simple terms, the more demand there is for Bitcoin, the more its price will go up, and vice versa. The more supply there is of Bitcoin, the more its price will go down and vice versa. It becomes more complicated when you look at what determines the level of demand and supply of Bitcoin.

One of the main reasons for this is Bitcoin is a crypto and not a fiat currency. The rules and infrastructure relating to Bitcoin are different from fiat currencies. Let’s look into this further.

Bitcoin vs. Fiat Currencies

The major difference between Bitcoin and fiat currencies, in general, is that Bitcoin is controlled by no one. In contrast, fiat currencies are controlled by national governments in some shape or form (apart from the Euro, which is controlled by the European Central Bank).

So Bitcoin is fully influenced by market forces while fiat currencies can be tampered with to negate or take advantage of market forces at a particular time. Bitcoin is a decentralized currency versus fiat currencies that are centralized to an extent.

If a government sees a problem in its economy, it may try to alter the price of its currency to gain more desirable circumstances. For instance, in 2019, China arguably devalued its currency in response to the U.S. imposed trade tariffs. The value of the Yuan dropped to an 11-year low in that period!

So with Bitcoin, there are no middlemen (the banks and governments), instead, transactions happen directly between individual actors for whatever purposes. Those purposes might be to purchase something, trade, or invest.

However, the issue with Bitcoin is that since market forces wholly influence its price, it has shown itself to be not as stable as traditional fiat currency. People see Bitcoin as a volatile currency (you only have to look at its price over the last ten years to see this).

While governments and banks provide investors with some feeling of certainty in the market through whatever means, there is no one who can offer such “guarantees” with Bitcoin. Let’s delve into Bitcoin volatility a little further now.

Bitcoin Volatility

There are four main points to discuss relating to Bitcoin’s volatility. The first is that Bitcoin is much like any other investment, asset, or commodity in that it falls victim to the forces of demand and supply as we’ve discussed.

The second point is that Bitcoin is an asset that people can buy and sell relatively fast, meaning traders and investors are always speculating on price changes. This means that the price can change a lot depending on the behavior of these actors.

The third point is that there is huge media interest in Bitcoin, along with interest from industry moguls and popular influencers. These institutions and individuals can change the price of Bitcoin by the way they report and predict what Bitcoin will do next.

If one prominent influencer puts the argument forward that the price of Bitcoin may drop, it might very well drop fast due to many people selling off their Bitcoin in a hurry.

The fourth point to make about what makes Bitcoin so volatile is related to governments. Government policy decisions about cryptocurrencies and Bitcoin can swing the price of Bitcoin in a heartbeat! For instance, when China cracked down on crypto mining within its nation, Bitcoin dropped from around $45,000 to $42,000.

The Uncertainty of Bitcoin

These are some of the reasons why Bitcoin’s price changes and why it’s so volatile. After all, it was the first ever cryptocurrency to be launched and it’s become so successful. There are Bitcoin millionaires all over the planet due to its colossal rise in price over the last decade or so.

Plus, there are now tens of thousands of other cryptocurrencies on the market to choose from. It’s quite a staggering achievement when you think that Bitcoin remains the highest-valued cryptocurrency on the market!

Many of the new and high-performing cryptos claim to have improved on what Bitcoin offers as a cryptocurrency. For instance, Ethereum, the second biggest market cap crypto on the market right now, offers quicker transaction speeds. Plus, it has just switched from a proof of work (PoW) system to a proof of stake (PoS) system, which is meant to be much more efficient.

What remains clear about Bitcoin is that it is as much a useable currency as it is an investment, with the latter having prominence. However, in the useable currency realm, things a developing at a rapid pace.

For instance, there are Bitcoin ATMs springing up all around the country and the globe right now! You can visit this page to learn more about Bitcoin ATMs and where you can use them.

The Price History of Bitcoin

Now you understand some of the main factors that influence Bitcoin’s price. Next, it’s a good idea to look back in time and see what influenced Bitcoin’s price on specific occasions in its history.

Bitcoin was launched on January 3, 2009. Let’s begin right at the start:

Bitcoin’s Price When It Launched

In 2009, Bitcoin’s price was $0.0009 per unit. This price was determined through the first transaction that happened on PayPal of all things! Martti Malmi sold 5,050 Bitcoins at the given price above.

Interestingly, Martti mined a whopping 55,000 Bitcoins from 2009 to 2010 and sold most of them before 2012. If he had kept these coins up until recent times, they would have been a total worth of over $1 billion!

Bitcoin from 2009 to 2012

The first “official real world” transaction that happened with Bitcoin is said to be in 2010 via a forum. A guy called Laszlo Hanyecz asked on the forum whether anyone would order him a couple of pizzas for 10,000 Bitcoins. As you can imagine, those pizza slices now would be worth possibly $1 billion each!

By February 2011, Bitcoin hit the $1 mark. This is when the ball started rolling and by June of that year, the price and gone up 30x that amount. Later on, though, Litecoin appeared which knocked Bitcoin’s price down somewhat.

Yet, when the year was almost over, Bitcoin’s price not only recovered but grew to $4.25 on December 31, 2011. Then, throughout 2012, the price grew all the way up to $13.45 on December 31 of that year. In general, 2012 was a steady year for Bitcoin.

Bitcoin from 2013 to 2017

2013 was a big stepping stone for Bitcoin. On January 1, 2013, Bitcoin had a value of $13.51. By November of that year, it had risen to a huge $1,127.45.

Yet this was not long-lived and the price dropped. We’ll explain why below.

Due to exchanges taking on Bitcoin, the cryptocurrency started to make waves. Mt. Gox was an exchange at the forefront of Bitcoin trading.

They managed to attract an increasing number of users, making the cryptocurrency more accessible and appealing. This surely boosted the price of Bitcoin by the end of 2013. But not long after, Mt. Gox suffered some bad luck when hackers stole what was equivalent to around $450 million from the exchange.

Of course, the price of Bitcoin dropped after the theft, and Mt. Gox had to go out of business in 2014. At this point in time, investor trust diminished by a large margin with Bitcoin. You could even say investors were put off by crypto as a whole in this period.

So from 2015 to 2016, Bitcoin didn’t have much movement price-wise. It was stagnant in a sense. Yet it held on firm until new investor interest came about because of a reinvigoration of media attention for Bitcoin.

2017 was a special year for Bitcoin. In January it was worth just over $1,000, yet at the end of the year in December it hit the $20,000 mark!

This was a turning point in cryptocurrency history as many serious actors could now see potential in this digital currency. At this point in time, many developers turned their attention toward creating their own cryptocurrencies.

Bitcoin from 2018 to 2022

For a couple of years after the end of 2017, Bitcoin’s value remained below the $10,000 mark. The excitement of it hitting the $20,000 peak went away, but there was still confidence in the concept for it to keep a respectable value.

Yet, around October 2020, things changed in a dramatic fashion. The price of Bitcoin began climbing like never before. It hit around $61,000 in mid-March 2021.

The final part of the meteoric rise corresponded with the coronavirus pandemic when many people feared that there would be inflationary pressure on the dollar. In June, the price halved for a while and then shot back up in November to reach over $64,000!

In 2022, Bitcoin crashed. The main culprit seems to be the huge FTX cryptocurrency exchange collapsing. However, others also believe that a rise in interest rates has something to do with the crash and the ongoing price of Bitcoin.

Something to Think About

From November 2021 through to June 2022, Bitcoin’s price graph looks very similar to the stock market’s performance graph. This interesting observation could mean something or not.

One idea is that it could be that investors and traders are starting to see Bitcoin in the same way they think of stocks.

What’s In Store for Bitcoin in the Future?

With Bitcoin being so vulnerable to various factors, it’s very hard to predict which way it will go in 2023 and beyond. The best advice for anyone wanting to invest in Bitcoin, therefore, is to keep a keen watchful eye on the news and listen to prominent influencers every day if you can.

If interest rates are something to do with Bitcoin remaining at its current price, then you should look to see when the U.S. government intends to end its current cycle of interest rate rises. If inflation starts to fall, then it is likely they will either stop the series of rises or will start reducing the rate. This might be a time to look into investing.

The World Is Watching the Price of Bitcoin

We hope you now understand a lot more about the price of Bitcoin, which is influenced by supply and demand. There are other factors at play too, such as the media and prominent influencers. Also, governments around the world can have a strong effect on Bitcoin’s price.

For more articles on numerous topics, be sure to check out our homepage by clicking on the website logo above.

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