Bitcoin has risen to new heights in recent weeks, with BTC increasing by around 1250 percent since the outbreak began. Let’s take a closer look at Bitcoin’s historical volatility in order to forecast its long-term price. In this article, we will see what factors affect bitcoin’s price? And its factors.
Bitcoin was first traded on the exchanges in August 2011 at a price of $ 10.90, and it reached the $1,000 mark for the first time in Nov 2013.
It took four days for Bitcoin to surpass $ 19,000 in Dec. 2020, after it stood at $ 19,666 in Dec. 2017.
Which Factors Affect Bitcoin’s Increase in Value?
Before we look at which factors affect Bitcoin’s price, it’s crucial to understand how Bitcoin’s value comes from.
The value of a currency is determined by factors including a nation’s economic development, inflation, financial, and fiscal policies in the conventional fiat financial system.
Even so, since Bitcoin is decentralised, the factors that influence fiat currencies have no bearing on its price.
So, where does Bitcoin’s value come from? The following are the factors that influence the price of Bitcoin.
BTC Market Forces
Supply and demand usually decide the price of any commodity. However, the number of Bitcoins available is small. His bid was limited to 21 million BTC, implying that until the total number of Bitcoins in circulation exceeds 21 million, no more Bitcoins would be issued by mining.
Furthermore, halving the Bitcoin mining incentive (halving) slows that mining process, thus slows the pace at which bitcoins are issued. As a result, we shouldn’t expect 1 million Bitcoins to enter circulation overnight.
The value of Bitcoin rises largely due to competition due to the small supply of Bitcoin. That fact makes Bitcoins valuable in the first place, since the scarcer a resource is, more the valuable it becomes.
Laws And Regulations
Despite the fact that Bitcoin is decentralised, it has piqued the attention of many financial regulators.
Bitcoin is listed as a tradable security by the Securities & Exchange Board (SEC), although it is listed as a product by the Commodity Futures Trading Commission (CFTC) in the U.s.
So, which factors affect Bitcoin’s price up with regards to regulation?
Currently, cryptocurrencies account for around 55% of the overall cryptocurrency sector. Bitcoin futures, in particular, have been extremely useful in Bitcoin’s volatility.
Despite the fact that there are approximately 18,649,356 Bitcoins in circulation, it is reported that only 20% of them are actively traded in the sector. That’s because most investors hold BTC as a measure of wealth rather than trading it highly speculative.
As a result, those who refuse to sell their Bitcoins rob the economy of much-needed liquidity. The risk is that if these whales plan to sell their BTC shares, it will greatly distort stock rates, creating panic and lower prices.
This helps free up BTC liquidity and improves market discovery by allowing traders to freely exchange long and short options on the BTC price.
What Causes Bitcoin’s Price To Rise?
Bitcoin has had one of the most consistent (and longest-running) market corrections in history since the beginning of the pandemic. Let’s take a look at what has happened.
Demand Has Risen.
As previously mentioned, the most significant factor deciding the price of Bitcoin is demand, and demand has increased exponentially
That’s how it all began. To avert irreversible inflation, governments and central banks were compelled to adopt unsustainable expansionary fiscal policy after the contagion wreaked havoc on the world economy.
This agenda included things like issuing checks in the event of a contagion, keeping interest rates low, and so on. These interventions doom fiat currencies to death, despite the fact that they have largely avoided a catastrophic economic crisis.
The supply of money grows as a result of expansionary policies, but the macroeconomic factors remain unchanged. Inflation throughout the fiat banking markets should have resulted from this rise in the money supply.
This rise in the money supply would have a long-term impact on the buying power of money. As a result, fiat currencies have become weak savings vehicles: the currency could lose buying power in the future.
This prompted investors to turn to cryptocurrencies in search of a more secure measure of wealth of their assets as well as an efficient inflation hedge.
This section does not apply to cryptocurrencies since they are decentralised. The supply of Bitcoin would always be small. This calms investors’ nerves by allowing them to test that Bitcoin scarcity.
It’s worth noting that the American Government is also issuing reward checks as part of its contagion relief programme. This will continue to raise inflation, which will inevitably lead to more Bitcoin growth.
Around 88.7% of all Bitcoin has been mined. The Bitcoin limit is projected to hit 21 million by October 2140 at new mining speeds. So, after the last Bitcoin is mined, whatever happens?
Let’s get to a point where there’s no more inflation! Transaction fees would be the only way for miners to be compensated.
More top 500 firms, in particular, are supposed to follow Tesla’s lead and have Bitcoins on their account balances. Miami has also shown an interest in accepting Bitcoin.