Factors Affecting the Price of Bitcoin
We all have seen the Bitcoin prices go up and down since its arrival in the financial market. At times it has reached higher levels creating new price records whereas it has also dropped down where everyone thought it will not bounce back again. The price fluctuation is one of the reasons Bitcoin is very popular, but what are the factors that influence the price of Bitcoin? Bitcoin similar to other cryptocurrencies is a decentralized digital asset that is not controlled by any authority, then how do we determine at price should we buy the Bitcoins? Buying Bitcoin is different than buying any other financial asset like the bonds or the shares. There are several factors that influence the price of Bitcoin; here are a few of them.
1) Supply and Demand: The price of Bitcoin is affected by the supply and demand. New Bitcoins are created through the mining process in a controlled environment at a fixed rate. So this can lead to a situation where the demand for Bitcoins is more compared to the supply, leading to price hikes. Bitcoin is a limited resource where it is limited to be created only until 21 million coins, once this number is reached, its price will depend mostly on its demand, market situation, its acceptance in the financial world and its value compared to the other cryptocurrencies.
2) The value on the exchanges: Similar to other stocks and shares, the Bitcoin and other cryptocurrencies can also be bought and sold on exchanges. These exchanges add a little fee for doing your transaction, causing the different price of Bitcoin from exchange to exchange. It also depends on the Bitcoins availability on the exchange. Check this out to know more about secure ways to do Bitcoin transactions.
3) Competition: Bitcoin was the first cryptocurrency to arrive in the market and so it is very well known. But there are many other cryptocurrencies that are gaining more popularity as they are much advanced than the Bitcoins in many ways. Because of this, the demand for Bitcoin has gone down in recent years resulting in its price drop.
4) Regulation and Legal processes: Bitcoin is in the market since long, but it has always been caught between the regulation and legal processes. Its popularity has bought forward many issues and hence the government of many countries wants to either ban it completely or put forward some regulations which can bring down the cryptocurrencies on common ground for everyone. This has majorly affected the price of the Bitcoin in recent years, where sometimes it seemed like the Bitcoin will be completely gone out of the financial trading while other times it gained some price hike.