Bitcoin rate fluctuations remains a hot issue not only for cryptocurrency professionals. It is important for BTC itself and for virtual currency market, and today The Coin Shark will tell why the rate of the world’s first digital coin fluctuates and why we actually talk about that.
1. What is Bitcoin?
Bitcoin is a payment system that enables users to make transactions directly to each other, without any agents. The system uses cryptocurrency as a mean of payment. In fact, cryptocurrency is an encrypted algorithm, a virtual unit that provides fast, reliable and relatively anonymous exchange. A special body – FRS – issues US dollars, and BTC are issued by users (miners) themselves. To produce new coins they make calculations (mining) and find the necessary algorithm (hash). When the algorithm is found, a new block is generated in Bitcoin blockchain and a new coin is issued. Miners receive a reward. Today it is 12.5 BTC, but once in 4 years the reward is reduced by half. In total, miners can get 21 million BTC, according to the cryptocurrency protocol written by its developer Satoshi Nakamoto.
2. Bitcoin and cryptocurrency market
The world’s first cryptocurrency is not the only one. There are more than 1600 already and there are definitely more to come. However, despite a huge number of neighbors, the biggest share of the market still belongs to Bitcoin. Till 2015 its dominance was around 90%. In 2016, many new cryptocurrency startups appeared, and in 2017 Bitcoin dominance reduced significantly. In June 2017 it was 38%, while Ethereum had 31%. At the end of May, 2018, Bitcoin has 38.6% of the cryptocurrency market.
What stands behind these figures? It’s the level of popularity, liquidity, influence on other coins and on the market. If the largest bank or company has problems – the whole financial system sufferers. And when behemoths are doing well – the whole economy benefits from that. And that’s how it happens with Bitcoin. It is not dictating other currencies what their rate should be, however, when BTC rate decreases, this is often enough for the whole market to go down, and when it increases, many other coins usually follow it.
3. Why Bitcoin loves roller coaster
Bitcoin rate is influenced by many things, from statements of well-known businessmen to hacks of cryptocurrency exchanges. So, here are some important factors that affect Bitcoin fluctuations.
- Big players
Unlike fiat currencies, Bitcoin market capitalization is very small. In addition, 125 billion US dollars – BTC market cap in May 2018 – is almost eight times less than the capitalization of just one company – Apple. Therefore, large coin holders can manipulate the rate to some extent. They can pump and dump it. Pumping is making Bitcoin to grow. That creates hype and makes many people to buy coins as they observe the sustainable growth. This massive purchase increases the rate even more. At the trading peak, “pampers” start dumping – selling their assets to get the maximum profit. so the rate falls.
- Good News – Bad News
Hype, media attention, advertising, information on the Internet, opinions of competent people or companies – all these things also affect the demand for Bitcoin, and hence its rate. News about the theft of users funds or bankruptcy of exchanges traditionally lead to a decrease. Positive statements about Bitcoin from the traditional financial sector representatives, state regulators or simply reputable people can encourage users to buy coins.
Cryptocurrency seems to have lost the battle with Chinese authorities that started in the since the beginning of 2018. China is one of the largest cryptocurrency markets, and most of Bitcoins are mined by Chinese mining pools, so the legal framework for virtual currency in the Middle Kingdom really affects the rate. The loyal policy of Japan and Singapore, the relative crypto-friendliness of the EU and other countries affects the rate positively, but as soon as we hear about new restrictions from China or South Korea – we should expect BTC rate to decrease.
- Liquidity and accessibility
At this point Bitcoin has much fewer problems than any other cryptocurrency. The network of trading platforms and places that accept Bitcoin as a payment, expands as well as the number of Bitcoin ATMs. These are tendencies that show the growing adoption of Bitcoin as a mean of payment. That will definitely have a positive impact on BTC rate.
- Internal governance
The management of Bitcoin is carried out on the basis of consensus by users and miners and there`s no central authority. At the same time, competent governance of the cryptocurrency and its technical development is an extremely important matter. Decisions to fork Bitcoin (when Bitcoin Cash, Bitcoin Gold, etc. appeared) also can influence the rate.
4. Is it possible to make predictions about BTC rate
Bitcoin rate has been increasing since the very beginning of the project. This tendency is clearly observable. Yes, often BTC reaches its peaks or depths, but generally since 2009, Bitcoin has been demonstrating a sustainable growth. Daily, weekly or other short term market fluctuations are difficult to forecast, despite the fact that for many traders this information would be extremely useful. Anyway, coin holders and traders need to keep an eye on general trends of both Bitcoin and the market, be aware of all news and events affecting digital currencies and analyze them, determine the possible pumping and dumping of the rate.
5. What to do with all this
Bitcoin is very volatile and to a certain extent can be speculative. |It enables some individuals to gain profits out of these fluctuations, but certainly is not that good for cryptocurrency market as a whole. It is difficult to say how will the rate change in the long term, but here’s what we can be sure about – it will fluctuate.