What determines the Bitcoin price?
October 2, 2023
Bitcoin is the first and the most popular cryptocurrency in the world. It is not controlled by a single entity like a central bank, so a single entity does not determine its value. When determining the Bitcoin price, you should pay attention to supply and demand. On the other hand, the more people are willing to pay for Bitcoin, the higher its price goes. And as there is less demand, the price goes down. Here at Aron Groups, we will talk about different factors influencing the price of Bitcoin in detail.
Table of Contents
Supply and demand
The first and the most important factor in determining the price of Bitcoin is supply and demand. Just like any other currency or asset, supply and demand play a crucial role in determining the price. There will be a maximum supply of 21 million Bitcoin in the world, which ensures the scarcity of Bitcoin. The increased demand influences its value. Some might buy Bitcoin as a payment solution, while others might purchase it as an inflation hedge, a store of value, or as an investment. There are traders who have lost their confidence in the banking system or fiat currencies and prefer to use an asset that is difficult to manipulate.
Another factor determining the price of Bitcoin is the number of Institutions and companies that are adopting it; as more companies start investing in Bitcoin, its value increases. As you have witnessed, the involvement of large corporations like Tesla and MicroStrategy has already had a positive impact on Bitcoin’s price. As large institutions purchase large amount of Bitcoin, they create greater demand, which limits the supply and increase the price.
Bitcoin was introduced in 2009, and since then, central banks and governments have been fighting cryptocurrency and implementing regulations or policies that impact cryptocurrency use. Any regulation that changes the acceptance can affect the price of the BTC.
Even spreading news of potential regulation or crackdowns on cryptocurrencies can lead to a drop in the Bitcoin price.
News and Market sentiment
Like any other market, news and Market sentiment play a huge role in determining the Bitcoin price. The BTC price can also be influenced by market sentiment and the media. Positive news, like a major corporation adopting Bitcoin as payment, can increase its value, while negative news can decrease its price. Even a single tweet from a famous figure can change the price of cryptocurrencies, which adds to the market’s volatility.
Bitcoin is based on blockchain technology, and any advancement in blockchain technology impacts its value. For example, network speed and efficiency improvements will increase demand for Bitcoin; on the other hand, technical problems can lead to a drop in its adoption.
The amount of energy needed to create Bitcoin is a factor that impacts its value. Miners, we spend a large amount of money to mine a Bitcoin, and when regulations or pressure on miners rise to force them to make mining more energy-efficient, the price might drop.
Although Bitcoin is the first cryptocurrency in the market and is considered the King, the rise of other cryptocurrencies can also impact Bitcoin’s value. If a new project gains popularity and acceptance, the demand for Bitcoin decreases, and so does its value.
Another factor determining the price of Bitcoin is having. Since the creation of the first block, all transactions have been stored in the Bitcoin blockchain; miners create new blocks by solving the mathematical puzzle, and new Bitcoins are circulated. The block’s reward in the Bitcoin blockchain changes from time to time in a process called having to decrease the number of new Bitcoins entering circulation. In halving the value of the block, the reward is cut in half every 210,000 blocks or every four years.
As the reward is cut in half, Bitcoin will become more scared, which leads to higher demand.
read more: How to buy cryptocurrency?
Why Bitcoin is so volatile?
Bitcoin is the most popular cryptocurrency in the market, but it is still a small market compared to the global market. As less money is involved in the Bitcoin Market, the price makes bigger moves up or down. The number of Bitcoins in circulation is limited, and the process of creating new Bitcoins is decreasing, so demand would have to follow the deflationary behavior of Bitcoin to even theoretically keep prices stable.
Is it possible for the Bitcoin price to go to zero?
Unfortunately, the answer is yes because the value of a currency or any other action is based on its perceived value. Hyperinflation or the introduction of successors can result in Bitcoin’s failure. As Bitcoin production is fixed to a certain amount, hyperinflation is not possible. Until Bitcoin, which is the majority of the world, it is possible to experience significant cross increases and significant past decline.
In the end
Bitcoin is the first and the most popular cryptocurrency in the market, which aims to become a payment solution. As more people accept Bitcoin as a store of value or a medium of Exchange, its value rises.
The value of Bitcoin is determined by supply and demand just like any other asset, the less Bitcoin created, the higher its value will be. As more institutions and traders adopt Bitcoin, it becomes more valuable. If you want to trade cryptocurrencies, use our demo account to familiarize yourself with the cryptocurrency Market. When trading cryptocurrencies, you’re not actually owning Bitcoin, but you can expect later on its price fluctuations. Trading cryptocurrencies is one of the services we provide you in Aron Groups to help you create a diversified portfolio. Do your research, learn everything you can about the cryptocurrency market, and choose a strategy before trading real money. You can use a demo account to test your trading ideas in a risk-free environment.