Which factors affect the price of bitcoin?


If there’s one thing we know about bitcoin, it’s that its price doesn’t stay the same for long. But have you ever wondered why that is?

We decided to investigate some of the factors that influence bitcoin’s ever-fluctuating price. So, let’s dive right in.

Supply and demand

Two of the main factors affecting bitcoin’s price are its supply and the market’s demand for it, otherwise known as supply and demand. But what does this mean?

Well, the supply (or total amount available) of an asset plays an important role in determining its price, since something scarce, or in short supply, is likely to have a higher price than something readily available. Bitcoin’s value reflects its scarcity, since there will only ever be 21 million produced and only a specific number of tokens are created each year. And as its supply shrinks, the demand for it increases.

This diminishing supply and increasing demand fuels a rise in price over time. Of course, we’re talking long-term here - it still experiences ups and downs in the short-term, which are caused by a variety of factors.

Speculation

One of those factors is speculation. Speculative interest in bitcoin is one of the main reasons its price changes so often. It’s driven by the hope of short-term gain, with investors effectively betting on which way an asset’s price will go next in order to generate a return.

Speculative buying is the opposite of a long-term investment strategy as it’s so focused on immediate market movements.

Regulation

Most governments around the world are still lagging when it comes to regulating crypto. But those that have almost certainly played a part in affecting the price of bitcoin.

The news of upcoming regulation or policy changes can significantly influence investors’ decisions, which in turn can lead to extreme market movements. For example, when China banned crypto in September 2021, prices dropped dramatically throughout the month. Conversely, prices have also been known to surge following regulatory rulings, such as when the US Securities and Exchange Commission approved the first Bitcoin ETF in October last year.

External influences

What the media, news, celebrities and influencers have to say about crypto can greatly impact its price. Yes, any good news about bitcoin tends to send its price soaring, while bad news has the opposite effect.

And with so many people with large online followings having their say these days, there are even more external influences affecting its price.

Big players

While celebrities like Elon Musk have the power to influence the crypto market with a single tweet, whether that’s their intention or not is up for debate. But there are plenty of other big players out there whose sole purpose is to manipulate the market.

Crypto whales are people or groups who own extremely large amounts of a certain token. And that means that when they decide to buy or sell a significant chunk of crypto, it drastically affects the market around them.

We delved deeper into whales and how you can track their activity in this post.

The crypto dictionary: total supply vs circulating supply

Trying to learn what’s what in the world of crypto? A common cause of confusion is the difference between a coin’s total supply versus its circulating supply.

While ‘total supply’ refers to the number of tokens that were originally created and includes those already issued, the ‘circulating supply’ describes only those that are still accessible to the public and available to trade.

So, now you know!

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Hope this crypto winter 'll see soon the end!:crossed_fingers::crossed_fingers::crossed_fingers:

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Great article :point_up_2: :+1:

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Agree Mate👍