Bitcoin is one of the most volatile digital assets and is a popular choice among investors for portfolio diversification. Bitcoin traders bank on this volatility to execute lucrative trades. So, what factors make Bitcoin a volatile and liquid asset?
The Bitcoin Volatility Index tracks the coin’s market performance. By the end of 2017 and the beginning of 2018, the price of Bitcoin surged to only come down further when the world was struck by the COVID-19 pandemic. However, the last quarter of 2020 experienced a price surge, which later reached an all-time high at $61,683.86 on the 13th of March 2021.
Bitcoin’s price had been fluctuating between $53,635 to $61,683, indicating that Bitcoin’s spot exchange rate is never constant. Several factors influence Bitcoin’s prices:
- Supply and Demand
Only 21 million Bitcoins can be mined; Almost 80% of them already have been.
Once the supply of Bitcoin reaches a saturation point, after which no more Bitcoins can be mined, there will be an imbalance between supply and demand. But, even before reaching that stage, Bitcoin has garnered a niche in the mainstream, And it is mainly due to its global-scale adoption as a currency used for online transactions. Also, it is a popular asset for speculative investment.
The bottom line is, there are several investors who have either invested or are looking to invest in Bitcoins. Thus, based on the law of supply and demand, whenever there is a demand, the price of Bitcoin will naturally surge. It is for this reason Bitcoin is often compared to gold.
- Regulations and Legal Matters
Bitcoins are decentralized cryptocurrencies that are not controlled or governed by a single authority like governments, banks, and other financial institutions. Unlike traditional currencies, they do not fall under the regulatory norms. With the ever-growing popularity of cryptocurrencies, new regulations are being implemented. And, these regulations will likely influence the price of the Bitcoin.
Due to its unregulated status, individuals residing in countries where cryptocurrencies are not completely legal can still transact in BTC or even mine them. However, once regulations are in place, this scenario is likely to change.
- Cost of Production
The real cost of production in the case of Bitcoin is related to electricity consumption, especially where mining is concerned. Bitcoin mining typically involves the use of special, high-powered computers. Due to high energy consumption, it takes roughly 10 minutes to complete Bitcoin transactions. With more miners trying to solve the complex mathematical problems for creating new Bitcoins, the cost of production will naturally increase and, in turn, influence the price of the crypto coin.
- Technical Factors
Technical factors influencing the price of Bitcoin are nothing but technological advancements and innovations. To quote an example, one of the latest developments was the integration of Bitcoin with PayPal as one of the payment options.
Another example is the adoption of Bitcoin’s blockchain technology for streamlining the supply chains of various commodities. IBM Food Trust, for instance, is storing a record of food system data to minimize waste and increase supply chain efficiencies.
The above-mentioned examples certainly impact the price of Bitcoin as it reflects its large-scale global mainstream adoption n. And thus, highlighting the importance of technical factors that will positively impact the price of Bitcoin.
- Political Risk
While the value of traditional currencies will decrease during political crises, the demand for virtual currency will increase as it is not bound to a single authority. For example, the 2015 political crisis in Greece resulted in many traders investing in Bitcoins. Political risks, most often, will increase the value of Bitcoin—it can be considered as one of the indicators for surges in Bitcoin trading.
Although it has been more than a decade, Bitcoin is still a novelty as far as its adoption, and mainstream applications are concerned. That said, Bitcoins are highly volatile where the price of the crypto changes every other day. Hence, it is imperative to be informed of the above-listed factors that influence the price of Bitcoin, as it will help you make better trading decisions in the long run.
Today, Bitcoin is a great thing to invest in for the whole world. Many investors and crypto supporters make good money from Bitcoin trading as the price of Bitcoin rise day by day. You can also invest in Bitcoin and make huge profits. But, before that, you need to choose a platform that can enable you to purchase Bitcoin. There are various exchanges and platforms available in the market from where you can buy Bitcoin. Choose the best platform amongst them to secure your money like Bitcoin Future. It is an automated trading platform that can help you to make good money from Bitcoin trading. You can check experts’ reviews on this platform to know more about it.