Contrary to other traditional currencies controlled by Central Bank, Bitcoin is decentralized and not subject to regulation by any authority. This makes it difficult to manipulate the price.
The unique aspect that is contributing to a spike in the value of BTC is the strict mining criteria. Miners are rewarded with half of every block they succeed to mine. The halving aspect reduces the amount of fresh BTC injected into the market.
As most countries across the World grapple with inflation, the value of Bitcoin remains unscathed. Despite being unable to be affected by inflation, Bitcoin is prone to fall and rise in price.
You bought BTC when the price was law, held in your wallet, and hoping that the price shoots up in order to sell at a higher price. What contributes to the shift in the price?
We put into perspective factors that impact the price of Bitcoin in the currency ecosystem. Just read here.
Table of Contents
Supply and demand
Just like any other product in a typical market environment, the price of Bitcoin is impacted by demand and supply. In fiat currencies, most countries adjust the discount rate in their currencies to control oversupply.
Typically, oversupply reduces demand which may lead to a drop in currency value. The same approach applies to the crypto ecosystem.
The halving of block rewards is one of the most effective ways blockchain technology controls the number of new Bitcoins injected into the market. The system has proved to be effective in ensuring the number of BTC available in the market remain at a bare minimum. With the number of Bitcoins capped at 21 million, the price of BTC is projected to increase big time.
Slowing growth in the number of Bitcoin available in the market is ideal for suppressing the number of Bitcoins. In cases where several miners are participating in mining and more Bitcoin is injecting into the market, then ultimately, the price is likely to drop.
Slowing the rate at which new BTC coins are introduced into the market aims at ensuring undersupply. This is a superior technology that has contributed to a sharp increase in the price of Bitcoin.
Competition
Though Bitcoin has become more popular than other cryptocurrencies, several other tokens are already available in the market competing for the same attention. While Bitcoin commands a considerable market segment, altcoins, ether, Bitcoin cash (BCH), EOS, and Litecoin (LTC) are major digital currencies staging fierce rivalry.
However, initial coins offerings (ICOs) are gradually gaining popularity due to a few barriers associated with obtaining the crypto. The crowded field is an advantage to investors since competition drives down the prices. On the flip side, the visibility of Bitcoin gives it an edge over other virtual currencies.
Cost of production
The cost incurred in producing bitcoin may at times influence pricing. This is because Bitcoin mining incurs a high cost of power in the production process. However, the mining process’s complexity and the timeframe are a few factors that play a major role in bitcoin pricing.
Ideally, Bitcoin mining entails several miners joining a network to solve complex mathematical problems. This impacts the timeframe miners are likely to take in mining a single block. Therefore to compensate for all the complexities involved in BTC mining, high prices are pegged on the coin.
Availability on currency exchanges
Typically, crypto traders trade against other currencies. Just like a standard trading platform, the crypto platforms allow traders to trade various exchanges. Investors trade various currency pairs, i.e., BTC/USD. The more a currency trades to create a network, the more it draws attention thus higher prices.
By capitalizing on the market clout, it gets a chance to guide how other currencies are traded on the platform. The presence of crypto on exchange networks implies a high acceptance level .The result is better BTC prices.
Government regulations
Most countries have rolled out various regulations and policies to regulate the use of BTC. This has sparked debate on whether Bitcoin should be classified as an asset, commodity or currency. Attempts by the Us government to roll out policies to regulate the use of BTC means it is subject to taxation. With higher taxation, prices are likely to shoo up.
Conclusion
The drop and fall of Bitcoin prices remain inevitable. This is attributed to the volatile nature of cryptocurrency. However, various factors enlisted in this article are key elements that are likely to impact the price of Bitcoin for the longest time.
