Mar 11, 2019 16:00 UTC
Mar 11, 2019 at 18:15 UTC
What Drives Bitcoin Price?
The price of Bitcoins has gone through a lot of ups and downs in the past few months. This coupled with the prolonged bearish market and the rising popularity of bitcoins may lead you to think about what it is that drives the price of Bitcoins. “Price” here refers to the exchange rate in relation to another currency, not to be confused with “value”, which is the perceived regard for the usefulness and benefits of Bitcoins.
If you are wondering how many bitcoins are there, the answer is a total of 21 million Bitcoins, which are to be created over 100 years according to a logarithmic release function. However, at press time a little more than 13 million bitcoins are in circulation.
The functions and uses of bitcoins are wide and many, but some specific ones are salient to price fluctuations. Bitcoins are used as a currency, as a store of wealth and medium of value transmission and it is a market instrument and commodity.
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Here are five factors that drive the price of Bitcoins:
Supply and Demand
Bitcoin, at the end of the day is just another asset and thus, like the price of any other asset, it’s price is not fixed. The demand and supply of Bitcoins play a major role in determining its price; as you know, the higher the demand, the greater the price, provided that the supply remains unchanged.
Media coverage and publicity plays another very crucial role in determining the price of bitcoins. For quite some time now, there has been a tremendous hype regarding bitcoins, and that has hugely influenced its prices. Obviously, positive media coverage pushes the price up, negative one can make it go south in no time. It might also be said that the nature of media coverage does not matter as the more people read about it from mainstream sources, the more they are likely to invest in it. The same applies to well-known investors and businesses who express their support for Bitcoin.
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It might seem unlikely that politics has a part to play in the world of cryptocurrency, but in all fairness it always does. For example, the tremendous inflation in Venezuela, and the complete crash of their fiat currency has led the country to issue “petro”, their state-backed cryptocurrency. An economic downturn in Greece has also caused the local population to heavily invest in Bitcoin and other coins, but here the consequences have been less vivid but still tangible.
Changes in Regulation
The cryptocurrency market had been completely unregulated a few years ago, but now, it can no longer claim that it is independent of the global market. As expected, when the total market capitalization of all the world’s crypto has reached a critical point, national governments set their eyes on Bitcoin and its younger peers. Though Bitcoins are not being issued by any of the governments, they still have the legal power to control mining and trading-related activities. Recognition of Bitcoin by some countries or on the other hand its ban by some others has influenced its price.
Bitcoin, which was released in back 2009, can no longer compete with latter-day cryptocurrencies in terms of technology. Bitcoin has thus been split or ‘forked’ on several occasions in order to incorporate or update certain features. As a result, the original BTC blockchain has been split into Bitcoin Cash, Bitcoin Gold and Bitcoin Private. Risks, associated with hard forks, bring the price down before the event.
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