If you are a new investor, then the drastic fluctuations of the bitcoin market can be unnerving. Without being backed up by a physical commodity such as actual gold, understanding why the value of bitcoin rise or fall can be a bit complicated.
Unlike regular currency, bitcoin is not manufactured by a government or even a centralized body. Instead of having a physical entity, bitcoin is a digital currency that’s traded worldwide in a peer-to-peer network. This often leaves people wondering how the value of bitcoin is determined. In this post, we take a look at 5 key factors that help decide the value of bitcoin so that you are better equipped to predict market fluctuations.
Supply and Demand
Even though it’s digital, bitcoin cannot escape the basic laws of economics, supply and demand. When the demand is high and the supply is low, the price of a commodity is bound to go up. Coming back to bitcoin, there is a cap of 21 million coins. This means no matter what, the supply of coins is always going to be constant. No one is going to mine more coins once that 21 million coins are out in the market. Currently, around 80% of that number is available in the market and the rest is yet to be mined. Once all the coins are mined, the supply of bitcoin will halt while the demand fluctuates. At that point, the demand alone will determine the value of the coins.
Introduction and Popularity of Bitcoin Exchanges
Bitcoin exchanges help people buy and sell bitcoin. These exchanges directly influence the total number of people who can trade in this cryptocurrency. This means an introduction of a new exchange in a previously virgin region opens up the coins to a huge number of new traders. Lookout for the introduction of new exchanges in previously untapped markets.
Legalization of Bitcoin
While countries like Malta and Switzerland are new hubs for the cryptocurrency, bitcoin trading is still highly regulated or completely illegal in some countries. China, for instance, allows its citizens to buy coins, but they regulate exchanges with often tough-to-follow rules. As China and other countries start to trust bitcoin, the price of the coin should go up. Similarly, when countries ban bitcoins, there is a negative impact on the price of the coins.
Market Hype and News
Demand for bitcoin is often influenced by news and hypes. This is why it’s important to study bitcoin news analysis posts and articles. Keeping up with the latest news on what’s happening in the bitcoin world, should help you better predict the market movements.
Interest from Investors and Banking Institutions
When billionaire investors and large banking corporations invest in cryptocurrency, there is usually a surge in the value of the coins. Swiss banking institution Falcon bank was recently allowed to offer a financial product to their customers that enabled them to trade in bitcoins. As more banks introduce bitcoin-centric financial products and funds, the value of the coin should increase as a result.