With Bitcoin prices soaring past $20,000, the cryptocurrency has broken all predictions about its impending crash. The price has increased over 500 percent since July 2017, which is a never before seen phenomenon in history. This has sparked warnings about it spiraling beyond control. There are several influential factors that bring about such a landmark change. Here are the 5 crucial factors that impact the price at present.
Bitcoin supply and increasing/decreasing demand
Gold prices are based on this principle as well. Just like mining costs are primary influencing factors for gold, the Bitcoin price is determined by the need for solving certain equations, which are also termed as mining. This forms the supply part.
The other part is the demand for Bitcoins, which is based on the awareness about Bitcoin, its popularity, trust among crypto community members, and even more. If the demand is high and the supply does not meet the demand, this causes a spike in the Bitcoin rate. With Bitcoins being a finite amount that will never cross 21 million, the supply is very controlled. Thus it is expected that the price will keep on increasing.
Regulations enforced by governments on Bitcoin transactions
Contrary to fiat currency, Bitcoin is not bound by any specific government regulations. This is the reason governments struggle to lay down regulations for it. But countries like Japan, the UK, Canada, and the USA have already released regulating laws on Bitcoin.
Japan, for instance, has several stores that accept Bitcoins as the government has recognized the cryptocurrency as a legal payment since April 2017. This has sparked a high increase in the Bitcoin rates. The legitimization by Japan is one important reason behind the soaring Bitcoin prices.
The regulations on Bitcoin and its subsequent rise have forced other countries to consider regulating the cryptocurrency. Bitcoin prices fluctuate whenever there is an official statement regarding digital currency regulation. This occurs even if the government declarations are not connected directly to the cryptocurrencies. The financial crisis in Cyprus is a good instance. When funds were seized, there were discussions about using Bitcoins as the new currency in Cyprus.
And whenever a government imposes a ban or restriction on the Bitcoin use, there is a drastic change in the price. One important factor due to which almost all governments want to eliminate the Bitcoin payment method is the anonymity associated with it. Proposals for supervision by a separate third party for the Bitcoin exchanges have been made. This, if implemented, can affect the prices significantly.
Bitcoin in news: Influence of media on garnering negative and positive publicity
As Bitcoin is a very volatile currency, even the minor change can influence its prices. It can be manipulated by negative and positive publicity in the news. News about hacking, banning of ICO by China, or some eminent celebrity declaring it as fraudulent can result in negative influence on the price. Since the market capitalization of cryptocurrency is not large when compared with global economy, even the mildest rumors that circulate on the web can lead to decrease in the value. However, negative news does not have the capacity to ruin the currency, as is witnessed now.
In some cases, the negative publicity actually helps to popularize the cryptocurrency, which contributes to its success. Hype in the media about Bitcoins can lead to spike in prices, while negative news can cause the price to drop.
News related to hacking the exchanges or bankruptcy can create bear rumours among users causing the price to plunge. News about the currency being used for selling drugs, laundering money, and other illegal activities can also impact the value of Bitcoins.
Bitcoin users and developers influence the rise and fall of price
The crypto community comprising of Bitcoin users and developers serves as a vital influential factor causing price fluctuation. Trust factor plays a crucial role in cryptocurrency environment. In spite of several other altcoins being developed with more superior features than Bitcoin, it is still the most valued currency because of the trust the community places on the currency.
So it is best for a trader to heed to the sentiments regarding Bitcoin. You should be in touch with the mindset of the community by studying the discussions, forums, and chats meticulously. This will help you to learn about the current situation and the direction in which the currency is heading towards.
Not only is Bitcoin still in its fledgling stage, it is new, peculiar, and with an unstable rate. This makes it risky and mutable. But it is hailed as the currency of the future because of its revolutionary nature. Trading the currency has certainly benefited the community and will do so if the current trend continues.
New technological changes to Bitcoin
The latest advancements and innovative efforts in technology have the power to influence the price of Bitcoin.
- Bitcoin integration with the payment system of PayPal is one instance which has sparked a renewed interest in the currency among people.
- Launch of various ICOs by the aid of decentralized platforms that include the Ethereum-like smart contracts.
- Another innovation is using blockchain technology for streamlining supply chain and improving transparency in various systems.
- Blockstream helps add more functionality to Bitcoins, which can increase the value as well.
As you can see, there is quite a large diversity in the factors which impact the value of Bitcoins. The first factor, which is Bitcoin supply and demand, is a slow-but-sure way to affect the price. In case of the media influence, the change is more drastically leading to speculative trade.
In the present scenario, it is clear that the price seems to be on an upward swing and will stay so irrespective of the presence of negative influencing factors. Knowing about these vital factors will not help you in specific price predictions but will certainly help you understand the “pumps and dumps” of Bitcoin and the reasons behind them. This would help you to make a sensible and informed decision on selling or buying Bitcoins.