As the first digital currency to be launched, Bitcoin quickly gained popularity in the world. But, from the moment of its origin, the value of this cryptocurrency constantly varies, which makes volatility one of the basic characteristics of Bitcoin. While some users have lost confidence in moments of a drastic decline in value and have decided to invest in another digital coin, others are still waiting for the moment when the values will be optimal to try their hand at investing. Anyway, there is no doubt that such a situation has affected the trust of many users, which is why potential new investors are very cautious at the beginning. If you are one of them, you would probably want to know what are the factors that affect the variation of the price of bitcoin so that you can take them into account when entering the crypto world.
Many things can affect the volatility of Bitcoin. From some obvious to some you might not even remember. In any case, we will point out some of them through this article. But when you’re already thinking about starting to invest, you might want to click here and consider some of the reliable places to trade.
Table of Contents
1. Supply and demand
The law governing supply and demand, as in all other markets, is present in the crypto market. This isn’t strange, considering that there are a supply and demand in the digital market that requires certain regulations for everything to function properly. Among other things, this is a factor that influences price variation.
The total number of these coins in the world at the moment, as well as their maximum possible number, is known. Similar to gold, miners are in charge of “digging up” coins to increase their number. For this purpose, they use software and hardware-strong computers, solve tasks and receive bitcoins in return. So the supply increases. On the other hand, demand depends on the number of new interested investors. Once both sides are taken into account, a value can be defined.
Probably the title made you think about what the law and regulations have to do with cryptocurrency, taking into account the fact that it is a decentralized currency. Indeed, governments haven’t yet found a way to control crypto flows, but regardless of that, since its inception, the digital currency has been a constant subject of discussion among state bodies. Even today, there is confusion when it comes to classification as well as the rules that will regulate this sphere.
This situation affects the price many times over. First of all, because of the frequent changes that disturb the public and which we will talk about in more detail later, as well as because of the increase in demand by attracting investors. Also, volatility can be stabilized by attracting institutional investors who will invest significant resources by betting on price changes.
As in all other markets, competition is the dominant factor in this, which can increase or decrease demand. In addition to bitcoin, there are many other cryptocurrencies that, according to experts, are gaining in popularity, regardless of the good reputation of the first launched digital currency. Although BTC is still the most dominant and according to some opinions, the best choice, when we take into account the market capitalization, the forecasts show that the competition is slowly approaching.
Some of the currently most dominant competitors on the market that may pose a threat are Ethereum, BTC cash, litecoin, and ripple. Research shows their great progress compared to the beginning of the previous year.
Also, one should be aware of the possibility of launching new coins that could intrigue the public.
4. Production costs
You will probably wonder how a virtual means of payment can require any production process, even an expensive one. As incredible as it may seem, in this case, too, there is a production process that is otherwise called mining. Cryptocurrency mining requires solving complex mathematical problems for which high computing power is used for a particular miner to come up with a solution first to receive his reward in the form of BTC. This further implies a large consumption of electricity implemented in the value of BTC.
As miners increase, the task becomes more complicated, which requires even more energy consumption to achieve the desired goal.
The media have a great influence on many public aspects, so it was expected that they would also have a great influence on the presentation of the digital financial system in the world. The greater representation of BTC in the media helps the average person to learn more about it and better understand how the whole system works. On the other hand, because of that, all positive and negative aspects are very transparent, which can cause the creation of different attitudes among people.
The greater the interest among people that is the product of positive conclusions based on the content placed in the media, the more likely it is that there will be a price increase. But also, if the media influences the creation of negative impressions, there may be a decrease in value.
6. The internal situation in the BTC community
Sometimes even community relations can disrupt price stability. One such example is the creation of BTC Cash, which is the result of allocating a certain part of the original bitcoin community. The reason for the division into two blocks was the impossibility of reaching a consensus. This further resulted in frequent and unexpected changes in bitcoin volatility.
Over time, BTC recovered and returned to an upward trajectory, so the situation became stable.
7. Political events
Although politically independent, the digital financial system and bitcoin as part of it can face ups and downs in terms of value when various political events cause it. There are many such examples in the world and mostly the problem is the same – the loss of confidence in the economic stability of the country. For that reason, people are trying to secure a secure future by taking matters into their own hands and turning to the digital financial system.
Such conclusions were drawn based on various examples in various countries, such as the crisis in Greece or Britain’s exit from the European Union.
The logical sequence of events will impose Bitcoin as the first coin that will attract attention, given its great world popularity.
Remember to consider these factors when deciding to start your first investment. Such information will certainly be very useful to you and give you clear guidelines on future steps you need to take depending on how the value moves.