Bitcoin is the largest cryptocurrency by market cap that has taken the world by storm, offering an alternative to fiat money, something that people have wanted for a very long time. Bitcoin was developed in 2009 by Satoshi Nakamoto, and even if it was initially only considered by tech enthusiasts, nowadays, people from all domains and sectors want to buy the coin after checking the current Bitcoin price to benefit from the possible consequent profits. However, Bitcoin is also very volatile, so its price can fluctuate rapidly in a short time. To understand better the volatile nature of Bitcoin, it can be a great idea to look at the factors that hide behind Bitcoin’s price fluctuations.
In this article, we will analyze a few of them.
Limited supply
One main factor that changes Bitcoin’s price is its limited supply, which is why only 21 million coins will ever be issued. This makes Bitcoin more exclusive and valuable than precious metals like gold. So, because of these unique features this can push the price of Bitcoin upwards, making this asset more attractive, as people want to have something that will no longer have the ability to be mined in the future. The limited supply of Bitcoin directly impacts its price, as a limited amount can always push the price upwards.
The limited supply of Bitcoin can increase its scarcity, which can boost prices. Another advantage of Bitcoin’s limited supply is that it acts as a hedge against inflation, which many countries deal with nowadays. This is why Bitcoin has become legal tender in countries dealing with devaluation, weak currencies, and inflation.
Market sentiment
Another main factor that can drive the prices of Ethereum upwards is market sentiment, especially nowadays, when people have become aware that Bitcoin can generate many possible profits. The market sentiment can be influenced by regulatory developments, media coverage, or other economic conditions, making people want to invest in Bitcoin or buy and sell it under pressure. The investors’ sentiment is also very common in the crypto space and can impact the outcome of investing in a digital coin. This is why, if you want to invest in digital coins, you must research the market first and be aware of the main things. In this way, you can make more informed decisions and not let emotions take over.
Because of the market sentiment, investors could experience the fear of missing out (FOMO), which isn’t very suitable, as they might not think rationally, thus negatively impacting their investments. As people can hear happy stories, more individuals might want to enter the crypto market, hoping they will have the same outcome. When more people start investing simultaneously, this can lead to a feedback loop that could provoke an unsustainable demand and make the prices fluctuate quite rapidly.
Regulations
Regulations can be another reason why the price of Bitcoins is changing that much, being one of the most important factors that makes the crypto pioneer so volatile. Unfortunately, no single regulatory framework applies to all cryptocurrencies, and countries have different approaches. So, depending on the specific regulation, this can have either a positive or a negative impact on the value of Bitcoin. For example, a clearer framework can better redefine the legal status of the crypto king, and in this way, investors can be more confident when investing in this particular digital coin.
However, there is also the reverse of the coin, when limitations or a more stringent regulatory framework could make people stay away from the crypto king, which could make the prices fall. Around the world, countries’ perceptions of cryptocurrencies differ a lot, and some are crypto-friendly, while others have imposed heavy restrictions. Among the most popular crypto-friendly countries are El Salvador, Malta, Estonia, and Switzerland, and these nations offer a supportive environment that makes them citizens interested in digital coins. However, some countries, such as Algeria, Bolivia, Nepal, and China, have imposed strict regulations and banned numerous activities, including initial coin offerings and crypto trading.
Technological innovations
Technological innovations can also cause fluctuations in the price of Bitcoin, as they could solve some limitations of the virtual coins. For example, new technological advances can introduce upgrades that can increase the security, capacity, and utility of Bitcoin. This can also improve users’ experience and positively impact the market sentiment, thus raising prices. An example of this technological advancement was the Taproot upgrade in 2021, which integrated smart contracts and improved the privacy of Bitcoin transactions.
Important events around the world
Important events can also affect the prices of Bitcoin, especially nowadays when wars are going on. However, Bitcoin can be seen as a safe-haven asset, as an authority or a government does not control it, and in this way, it can still maintain its value, which doesn’t apply to fiat money. This is why, each time there are wars, people could be more interested in investing in Bitcoin, as in this way, they won’t need to be tied to a specific currency from a country.
The increasing adoption of countries
If countries continue to integrate Bitcoin into their economies, this can also positively affect the evolution of the crypto king. Bitcoin has started to be legal tender in more countries, and if this continues, then Bitcoin could be more accepted worldwide. For example, El Salvador made Bitcoin a legal tender in 2021, and it can serve as an example for other countries around the world.
Bitcoin is the largest cryptocurrency by market cap, and even though it has experienced numerous fluctuations over the years, it has managed to resist and maintain its first position in the crypto jungle. This is why Bitcoin is one of the most important options when people are interested in investing in digital coins.