Factors Influencing Bitcoin’s price

With the development of technologies, we more and more rely on digital instruments and systems, which make our lives easier. Not only has changed the way we communicate but also entertainment, shopping and education. Recent tendencies, as practice shows, may turn around our perception of financial operations as well as traditional institutions. When mistrust and need of change take place, cryptocurrencies - and Bitcoin as the most prominent one - steal the show.

If you don’t understand the hype and battles between Bitcoin (BTC) lovers and haters, we will try to make your life easier. It may seem a tricky issue, but we are here to find out the secrets of Bitcoin volatility.

Why is Bitcoin so popular?

Despite all the skepticism, cryptocurrencies have been recognized as a promising alternative to existing financial instruments. There are several features that make Bitcoin the most discussed and invested virtual currency.

  1. While Bitcoin itself does not guarantee perfect anonymity, users can hold multiple BTC addresses, not linked to any personal information. Also, multiple wallets, online wallets and mixing services can be used to keep financial privacy.
  2. The Bitcoin network has no central control. If you use paper currency, your life is always influenced by the actions of banks and governments. When it comes to BTC, only participants define the rules of the game. While a user of traditional money is always forced to use centralized service, BTC owner is never obliged to do it. There are exchanges and services like CoinBase, but users employ them at their own pleasure.
  3. Broad applications. Bitcoin and blockchain technology are, in fact, important not only in the financial sphere. They may bring potential enhancements to property trading, insurance claims, document stamping and auditing, settlements and customer rewards etc.
  4. Hedge against risks. Digital currency is a good option for people, who live in countries like China, - where the risk of devaluation is a pressing issue. Experts have noticed a negative correlation between the dollar value of Bitcoin and the yuan (https://blog.bitmex.com/renminbi-vs-bitcoin-correlation/).
  5. Easy, fast and open. BTC account can be set up in minutes and you don’t need to be an accredited investor to participate. The access to investment is instant as well as the speed of transactions. In prospect, Bitcoin has the potential to become a simpler and cheaper option for overseas transfers.

Volatility can spoil the party

Volatility refers to the amount of uncertainty or risk about the size of changes in a security's value. As you have already heard from the news, the swings of Bitcoin price are always in the highlight. In 2017, it captured headlines climbing from $5,000 in November to $19,000 in December (https://data.bitcoinity.org/markets/volatility/2y/USD?c=e&f=m10&g=15&st=log&t=l). This is not surprising.

In contrast to fiat currencies, cryptocurrencies do not have fundamentals and will never have. In fact, the value of cryptocurrency is shaped by those who own, buy and sell it. So, the price is determined by the variety of factors and is almost unpredictable. The only thing investors have to rely on is hope. Critics state that the extreme volatility of Bitcoin and its alternatives make it not fit as a method of exchange. Some retailers (for example, Steam – the world’s biggest video-game service) have stopped accepting crypto for this reason (http://uk.businessinsider.com/valve-owned-steam-has-stopped-accepting-bitcoin-2017-12).

All in all, Bitcoin is the least volatile cryptocurrency, which brings optimism. For some investors, volatility is not a bug, but a feature. It attracts the attention of humanity to the concept of digital currency while encouraging more people to participate. Furthermore, it guarantees enormous profits for watchful and cautious traders. Remember, no risk – no gain.

What influences Bitcoin’s price 

As we’ve stated above, the Bitcoin price is not controlled by any organization, company or government. It may seem that only God knows, what future fluctuations will be, and that is true. However, there are several influential factors which help traders and analysts predict potential drops and rises. Here are the 5 key aspects we should be attentive to.

  1. Bitcoin supply and demand

As the price of gold, BTC prices are based on mining costs. In the case of the cryptocurrency, mining means calculating certain equations for obtaining new Bitcoins. Also, high demand and low supply lead to an increase in the price. Since the total number of bitcoins in circulations is limited to 21 million, there are predictions that its price will continue to rise with time.

  1. Government regulations

Bitcoin price changes are observed any time a government releases official regulation of cryptocurrencies. For instance, countries like the U.S., Japan, the UK and Canada have already taken some actions to control crypto market for their citizens.

Japan has recognized BTC as a legal currency and some stores within the country now accept it. These events facilitated to the increase of Bitcoin price. Also, when funds were seized in Cyprus during the financial crisis, there were discussions concerning Bitcoin as a good option for the new currency. After this, the price popped 87% in 2 years. Analysts expect future fluctuations as soon as governments impose bans and regulations to crypto market.

  1. Technological changes or hard forks

Emergence of new functionalities and development of the old ones also sparkle interest in virtual currencies. Among instances which justify this statement are the integration of Bitcoin with PayPal, Blockstream (https://blockstream.com/) popularity and using crypto in crowdfunding startups.

Hard fork is another important game-changer. In general, it is a split in Bitcoin’s blockchain, a radical change to a protocol that correct security risks. You should remember that, when you see information about an upcoming hard fork, expect Bitcoin’s price rise. Everyone wants to get free money when a new copy of the existing blockchain is made. Anyone holding coins on one chain now holds equal parts of the coin on the new chain by default. So, people buy more currency in this period.

On the other hand, forks can be tricky and, as a result, divide opinions of Bitcoin creators and miners. In this case, the price is likely to fall even before a fork.

  1. Media influence

It may sound unconvincing, but many experts see a connection between Trump’s tweets and Bitcoin fluctuations. Traders around the world monitor the president’s pronouncements and this influences stock and currency market. Sooner or later, governments will start creating new regulations concerning bitcoin, and BTC may be treated as an ‘anti-dollar’ currency in the USA. If something like this happens, you know where to look for entry signals.

News and tweets also change minds of people engaged in the Bitcoin rush. Bad news makes owners sell BTC quickly and for lower prices – so, the value drops. Good news motivates people to buy BTC for higher prices to get it ASAP – the price rises.

Bearing in mind volatility of Bitcoin, it is clear why even rumors in social media and news about drug selling affect the price.

  1. Mindset of crypto owners

Essentially, the value of the cryptocurrency is created and supported by people actions - especially high rollers. Moreover, the leadership of Bitcoin is not provided by its unique features – its main fuel is people who trust in it. So, the best way to stay in touch with the latest tendencies is to study discussions, chats, forums and personal opinions of digital influencers.

Believe it or not, when it comes to cryptocurrencies, sentiments play an important role.

Invest or Not To Invest?

If you still cannot answer this question, here are 3 pros and cons of investing in Bitcoin.

+ It is easy. To invest in BTC, you should just buy it on an online exchange and be attentive to price fluctuations.

+ It is independent. Since many people don’t trust traditional financial institutions and governments, Bitcoin seems to be a good hedge.

+ It is likely to go up. Experts have predictions that BTC price will only rise, hitting astronomical levels.

- It is unstable. The value of cryptocurrencies shifts unexpectedly and wildly. Bitcoin proves to be reasonable in countries like Zimbabwe, where the local currency is worthless. But it’s still questionable, whether investing in crypto is wise in the US and Europe.

- It is unreal. Frankly, Bitcoin is nothing more than computer code. It isn’t underpinned with property or anything real – it’s value is based on trust. So, in the worst case, it can become worthless.

- It is not the best. Bitcoin enjoys the biggest popularity on the market. However, altcoins like Ethereum, Ripple and Litecoin have proven to be faster and more flexible. With such strong opponents, BTC will not be a leader forever.

History often repeats itself, but Bitcoin phenomenon is more complex than ‘dot-com bubble’, which left many people broke as a back. All in all, there is still a lesson you can take up from the ‘bubble’ burst in 2000-2001. Don’t invest more money than you can afford to lose. And, in addition, speak to a financial advisor if you want to make your decisions as safely as possible.