5 Components That Influences The Pricing Of Bitcoin

October 24, 2018 Quick read

Bitcoin’s value has seen periods of extreme volatility. Between November to December 2017, it increased 223 percent, before falling 59% by February 2018. By March 2018, it dropped again by about 40 percent.

This does not mean that you need to give up on Bitcoins or cryptocurrencies altogether, there are a few reasons for which the volatility exists. These reasons are somewhat similar to that of the stock market. Lets discuss them in detail.

The Demand And Supply Gap

Just like there is a limited supply of gold in the world but the demand is unlimited, the same logic goes with Buying Bitcoins Online. To date, Bitcoin miners have already mined 80% of the Bitcoin available in the world, the unlimited demand for Bitcoin jacks up its prices. However, sometimes, when the demand for Bitcoin decreases, so does its prices.

Greater Media Coverage

With media giving Bitcoin positive reviews, more people are interested and curious about Bitcoin, which eventually raises the prices of this cryptocurrency on various Online Bitcoin Exchanges. It has been proven with various researches that media coverage is one of the biggest influencers for the pricing of Bitcoin. In fact, even the opinions and behaviours of ace investors can also influence the pricing of Bitcoin. Some online and offline retailers and other small businesses have even started accepting Bitcoin as a valid payment option, cementing the rise of Bitcoin in people’s mind as a legitimate currency.

Changes In Government Regulations

Bitcoin, being a decentralized currency, does not have Government regulations that apply to it. Many Governments across the world have struggled to regulate it.

China cracked down on Bitcoin, shutting down on all the Bitcoin exchanges, this resulted in a dramatic drop in the price of Bitcoin. On the other hand, when Japan decided to accept Bitcoin as a legal tender, it resulted in the prices of the currency to skyrocket over a few months.

Political Climate

Whenever there is a political risk of a certain currency, the nationals of that country turn to Bitcoin as a saviour to protect the value of their investments. This happened with the Greeks buying Bitcoin during the economic crisis in Greece during 2015  and when Britain decided to withdraw from the EU on 23rd June 2016.  These developments lead to an increase in the price of Bitcoin for a short period of time. Even after the election of US President Donald Trump resulted in the prices of Bitcoin rising steeply. Many experts looked at this as a reaction to the uncertainty in the US economy.

Bitcoin Rule Changes

Though no single entity controls Bitcoin, its community controls the way the system, known as blockchain works. The miners run the software that verifies the Bitcoin transactions, thus, determining the rules of what valid transactions are.

Whenever there are attempts to change the rules of these transactions, a fork is created, which causes the formation of two separate  chains that have different rules. Here, as long as there are miners who will work separately on each chain, both the chains will be valid.

Bitcoin is somewhat like the stock market-there will be fluctuations in its value. However, it is an ideal way to invest in as it is appreciating well in value. For those people who do not have access to mediums to invest in, Bitcoin can be an ideal choice.