The price of the first most popular digital cryptocurrency depends on a wide range of factors. Ideally, the bitcoin price is usually expressed as the exchange rate of bitcoins in relation to other currencies. With the increasing use of this digital currency, demand for bitcoins has increased significantly in the recent past. Due to the decentralized character of this currency, the price of bitcoins is not controlled by any company, organization or government. This means that, before you try to predict the currency fluctuation, it is important to understand what causes the same. Here are some of the major factors that can affect the price of bitcoins:
Every time the government publishes official statements about the regulation of digital currencies, the price of bitcoins is usually affected. Even if the actions of this government are not directly related to virtual currencies, the impact will still be felt.
A good example of this is the banking crisis in Cyprus, where the government seized the funds. This caused a discussion about whether Cyprus should use Bitcoin as a new currency.
Each time when governments put restrictions on the use of bitcoins the price changes drastically. Most governments are proposing certain rules to eliminate the anonymity nature of the bitcoin transactions. For example, mechanisms that were created to trace third-party organizations, had a huge influence on the bitcoin price.
Supply and Demand
The price of bitcoins largely depends on supply and demand. This means that high demand and low supply often leads to an increase in the price. Bitcoins have a controlled supply, so the total number of bitcoin in circulation can’t exceed 21 million. Because of the limited supply, there are suggestions that the price of bitcoins will continue to grow with time.
The first significant hard fork occurred on August 1, 2017. A lot of bitcoin users thought that this could completely destroy the bitcoin and the price of it. Nebertheless to the surprise of these people, bitcoin remained intact with its price experiencing an unessential dump a few days before the event. In fact, the changes affects the price in a positive way.
The media can also considerably influence the bitcoins price. Media advertising can easily lead to an increase in price, while negative news can lead to a decline in the price.
For example, news of bankruptcy or hacking on websites and services associated with bitcoins, can cause panic among bitcoin users, which will lead to lower prices. Negative news about government participation, as well as news about the use of bitcoins in illegal transactions such as drug operations and money laundering, tend to have the same effect on the bitcoin price.
Psychology of Bitcoin Users
Psychology of bitcoin users directly affects to the price. At first glance, this factor may seem so obvious that it is foolish even to take it into account. But, in fact, it is not.
Trust is the most important thing in the sphere of cryptocurrency. There are dozens of Altcoins, which functionalities is much more advanced than that of Bitcoin. Nevertheless, bitcoin is a leader, because people trust it. So if you try to predict bitcoin price changes you should pay attention to sentiments in the crypto community. The best way to catch up with the cryptocurrency sphere is studying forums, discussions and chats thoroughly.