What affects bitcoin price:factors and challenges

What affects bitcoin price:factors and challenges

Table of content:

  • Main factors
  • How else can we explain the change of the bitcoin rate?
  • How to earn on Bitcoin or Ethereum?

Over the past 2 years, bitcoin has grown in price by an order of magnitude (10 times), so what affects bitcoin price and how long will this continue? Let’s try to figure it out …

Since bitcoin, as a decentralized cryptocurrency, is not subject to regulation by the state (in most countries), its exchange rate relative to the currencies (dollar, euro, etc.) is now mainly formed during exchange trades on crypto exchanges.

Main factors

The exchange price is formed on the basis of the balance of supply and demand. Therefore, it is worth analyzing what affects the demand for bitcoin and how a proposal is formed for it.

  1. A limited number of coins. Deficit generates demand, and consequently – prices for scarce goods are growing. As you know, the maximum number of bitcoins is limited to 21 million coins. Currently, slightly more than 16 million bitcoins are in circulation. The restriction on bitcoin emissions, coupled with the loss of coins with loss of access to purses, make this deflationary currency. In the future, it is the limited emission of bitcoin that will push its market price up. In this sense, bitcoin is like gold – it is as difficult to extract and difficult to forge.
  2. Trades of altcoins paired with bitcoin on crypto exchanges. This feature of the work of crypto-cash exchanges leads to the fact that with the growth of demand for altcoins, the demand for bitcoin is simultaneously growing, since it is necessary to pay for them with bitcoins to buy altcoins (be it litecoin, dash, monero or any other cryptocurrency). That increases the demand for the last one and leads to an increase in their exchange rate.
  3. Growth of the bitcoin network. New users (wallets), new nodes and new miners appear. By itself, the growth of the network already leads to an increase in its utility (and therefore value), which, according to the law of Metcalf, is proportional to the square of the number of users. In addition, increasing the number of users of the bitcoin network leads to an increase in demand for it.
  4. ICO (Initial Coin Offerings) is a way to attract primary capital using cryptocurrency. This new investment tool not only stimulates demand for cryptocurrencies, including bitcoin, but also attracts wide attention to them. The number of ICOs and the amount of financial resources they raise are growing.
  5. Increase in the market value of bitcoin. Growth of assets always attracts investors. And the rapid growth – and even more so! As already noted, for two years bitcoin has grown at a market price of 40 times. This, on the one hand, attracts a growing financial interest, which leads to an increase in demand for cryptocurrency, generating an avalanche effect. On the other hand, bitcoin falls into the trap of Gresham’s law, according to which “the worst money is displaced from the best” (another wording: “cheap money drives out the expensive”). Bitcoin owners are reluctant to part with it, as this crypto currency is becoming a good means of accumulating wealth. The last one leads to a decrease in supply to the market and, as a consequence, to a price increase. As noted above – a scarce commodity is more expensive. But, for rapid, avalanche-like growth, there is a downside – after euphoria, panic can also come quickly, which brings down prices and the market.
  6. News indicators. This is a “double-edged sword”. The market reacts quickly both to positive news about cryptocurrencies, and to negative ones. Of course, positive events reinforce the bullish trend and increase the exchange rate growth, while negative ones lead to the so-called bear market reversal – the transition from growth to a drop in quotations. For example, in January 2017, the negative decision of the Securities and Exchange Commission (SEC) regarding the ETF of the Winklevoss Bitcoin Trust broke the bullish trend of bitcoins and led to a fall in its rate. News indicators are the most unpredictable factors affecting the market, including the cryptocurrency market. Bad news can seriously shake any cryptocurrency.
  7. Technological breakthroughs and problems. Separately, we highlight this, because among other news indicators, they occupy a significant place, because they have an internal nature, and not an external influence. Bitcoin problems, such as scalability, can lead to a loss of trust in it and, as a consequence, its market’s withdrawal and a change for other cryptocurrencies and a drop in the cost of bitcoins. On the other hand, technological solutions that improve the functional properties of bitcoin and solve its problems lead to increased confidence in it, the growth of its popularity and, as a consequence, the growth of its market price.
  8. Influence of state institutions. This is an external factor, but ignoring it is not worth it! The modern financial world depends to a large extent on state regulation. The attitude of the states towards cryptocurrency in general and bitcoin in particular will in the near future affect the markets of these currencies. There are both risks and opportunities. But, practice shows that state intervention in business often leads to negative consequences for the latter.
  9. Shadow market. Criminal (drugs, weapons, etc.) and semi-criminal (tax evasion, etc.) transactions are now mostly carried out in more secure anonymous cryptographic (monero, zetocoin, etc.). But, given paragraph 2, the shadow market has a significant impact on the demand for bitcoins.

How else can we explain the change of the bitcoin rate and what affects bitcoin price?

Financial exchanges exist due to the fact that they earn money for changes in the exchange rate. What exactly are there changes? Smooth rising or decreasing the course is a natural process that occurs continuously. The sharp rise or fall of the course means that the market has gone out of the empire (a person with large assets, which is capable of artificially affecting the price of cryptocurrency). Pampers are wealthy people who earn on young traders. When a large number of young traders come to the market, demand for currency is rising. At this time, the Pampers actively buy other people’s assets, and, besides natural growth, due to young traders, active growth is taking place at the expense of the Pampers. And at the moment when the price becomes the maximum, they discard all the assets and the currency depreciates. At that moment, the so-called dump takes place. The prerequisites for the constant growth of the currency is more than enough. Now on the Internet, it’s the case that the advertisement about earnings in this form of currency is highlighted. And the more bitcoin becomes popular, the more people invest in the hope of easy earnings – the higher the price. What affects bitcoin price? The history of bitcoin has shown great jumps and falls. Basically, this was done artificially for the benefit of these same Pampers. They come up with stories about hacking wallets, about the site’s unreliability and other nonsense. Thanks to this, the demand is temporarily dropped and there is an opportunity to buy the currency cheaply. Then the denial of these news comes out, and the currency is gaining popularity again. And, consequently, the bitcoin is rising in price. Means the “Pump” are golden.

How to earn on Bitcoin or Ethereum?

In order to earn money on cryptocurrency, there are two options: daily tracing of world news on cryptocurrency, analyzing and making forecasts for the future, and not succumbing to instant decisions, but to wait; 24 hours a day to monitor changes in the exchange rate and get the “pampas” time. Here you should not be afraid to make a decision within a few seconds. And this variant also has the right to live, there are a lot of examples when people earned on this (a great option is binary options). However, as in any currency market, luck is needed. So if you decide to earn on bitcoins, let luck accompany you.

In conclusion, note that bitcoin, as a new attractive investment item, also carries the risks that must be taken into account when forming an investment portfolio. And there is no unambiguous answer for a question: what affects bitcoin price? Many factors influence the price of bitcoin, and the speculative component in it is still quite high, but cryptocurrency is developing and an interesting future awaits it.