Factors Influencing the Bitcoin Price
Bitcoin, apparently, has been the hottest investment offer of all time. Once it could have been bought for a penny, but now the BTC price goes as high as $6,150 (valid for June 23, 2018). Some believe that Bitcoin has already attained its maximum and further investments will be nowhere near profitable. However, a more in-depth study of the issue shows that Bitcoin is only at the outset of its development and may likely gain another momentum as the price fluctuations are typical for the cryptocurrency world.
With governments printing new money out of thin air, thereby causing inflation, the number of Bitcoins that will ever circulate within the market is predefined at 21 million, which makes Bitcoin a deflationary asset.
Let's look at some of the other key factors that affect the price of the most famous cryptocurrency.
Bitcoin and its inherent volatility
It is common knowledge that Bitcoin is prone to high volatility. For those who do not know what it is, volatility refers to the magnitude of price fluctuations within a specific period of time (short-term or long-term).
According to statistical data, the volatility of gold is 1.2%, the volatility of traditional currencies - 0.5-1%.
In 2014, when the value of Bitcoin reached $1,000, the volatility index for the cryptocurrency went to 10%, now this figure varies within 3.5%. Such high marks suggest that this virtual currency can be used as a tool for speculative earnings. Still, many users rely on Bitcoin as a store of value and make investments in the hope of getting a decent return on initial capital with time. But nonetheless, it should be noted that the Bitcoin value may move downwards just as well, causing substantial financial losses to investors.
Bitcoin and its everyday use
Basically, Bitcoin is used for money transfers and benefits to customers who transfer funds in cryptocurrency as such transactions involve lower fees (than those of cross-border fiat transfers, for instance). Since in many countries the use of cryptocurrencies is not a thing of everyday life, then the addresses are forced to immediately exchange crypto to traditional money or sell Bitcoin on exchanges. As long as Bitcoin is poorly adapted for daily use, people will heavily trade it against fiat money, thus causing its price fluctuations. And no matter how much Bitcoin cost in 2009, at the dawn of its birth, now its market performance is more dynamic.
What do actual figures and stats say? Let’s refer to one of the most popular Bitcoin exchanges within the European market - CEX.IO. In the modern cryptocurrency ecosystem, CEX.IO can be regarded as a medium-sized Bitcoin exchange, having the user base of around 2.5 million. Here, the daily trading volume in Bitcoin amounts to approximately 800BTC, which translates to almost $5 million. Not too bad, is it? And what if we take all cryptocurrency exchanges that trade Bitcoin (around 200 platforms)?
The number of transactions made with Bitcoin is constantly growing. This stands as a key indicator of Bitcoin’s popularity. Following the trading volume stats, you can analyze how the demand for Bitcoin has been swinging from time to time and bring it into direct correlation with the price. For Bitcoin, this dynamics has been positive. On average, the 24-hour trading volume for Bitcoin within all exchanges goes as high as $5 billion and is the largest in the cryptocurrency market. This influences the price of Bitcoin and makes its rate fluctuate.
Bitcoin and the regulatory framework
Different countries show different attitudes to cryptocurrency in general, and Bitcoin in particular. Given the decentralized nature of Bitcoin, it is not easy to tax it or fit it into the uniform regulatory framework. Some nations recognize Bitcoin as an asset or commodity, while others define it as money. There is yet another group of countries that impose an outright ban on Bitcoin, and any crypto activities within their borders are strictly prohibited (e.g. Bolivia, Nepal, Ecuador).
On the one hand, any government recognition can give a positive impetus to the value of the cryptocurrency and push it to wider adoption. On the other hand, there are prerequisites to believe that, as an asset, Bitcoin will be subject to rigid regulation, which might significantly complicate its use in everyday life and thwart its overall progress.
2018 is going to be the year of cryptocurrency regulation, some experts believe. Many governments have already changed their attitude to Bitcoin: from a complete objection to the recognition of Bitcoin and blockchain’s potential. Blockchain is heavily applied in various industry sectors nowadays, and the fact that this is the technology underlying cryptocurrency contributes to Bitcoin’s performance a lot.
Still, whether the 2018 regulations will act as a propeller or a deterrent for Bitcoin’s price remains to be seen.
Bitcoin and the media coverage
Any hype around Bitcoin is a good thing as it turns the heads of the public and thus attracts more investors to cryptocurrency. As of today (June 23), Bitcoin even beats Donald Trump by the number of requests in Google.
The news on the mind-blowing rise in Bitcoin’s value in 2017 (up to $20,000), government statements on the status of cryptocurrency within the country borders, public support or criticism from thought leaders - all these make Bitcoin a hot-button issue that ignites enthusiasm in the global community. Sure thing, negative news retards Bitcoin’s growth and results in the price of Bitcoin plummeting to historic lows. Instead, positive sentiments of the public lead to Bitcoin testing new all-time highs. So, stay tuned to news announcements, tweets from the key crypto experts, and social media updates.
Today, with the increasing interest in blockchain, the attitude of the community to cryptocurrency changes. The acceptance of Bitcoin as a payment method by many well-known companies like Microsoft or Virgin Galactic indicates tolerance and openness to innovation. Therefore, an increase in demand for a new form of electronic cash is inevitable. Bitcoin is still a young currency and as it grows, new solutions and opportunities will be emerging.
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