What are the main factors that affect the price of Bitcoin ?

Last Updated on July 20, 2021

Basic education: the price of Bitcoin

In the last few months, the selling of Bitcoin and other cryptocurrencies accelerated at a sharp pace, bringing the price of the leading digital currency above the $30,000 level, losing more than 50% from its high in mid-April, and the total market capitalization of the coin falling below $630 billion Down from more than $1 trillion earlier this spring.

Fluctuations in the price of cryptocurrencies like Bitcoin often make the news, with ups and downs of 40% or more in a matter of days not uncommon, but what actually causes such broad moves? Here are some of the main reasons:

Regulations of Bitcoin trading

As with any new type of investment, the law is racing to keep pace with the development and use of digital currencies, questions are being asked in various countries and jurisdictions about whether they should be recognized as units of currency, tightly regulated, or even made illegal, and new decisions are made and changed throughout time.

Prices tend to respond quickly to any decisions related to regulating cryptocurrencies, for example: when Japan announced that it would legalize bitcoin in April 2017, the price reached $1,130, up nearly 3% on the day.

But when regulators take drastic action, this also affects cryptocurrencies severely, the main reason for the recent downturn has been the Chinese market, mainly because of its sheer size.

China has repeatedly cracked down on cryptocurrency, with the market crashing after most of the ads, for example: in February of this year, China blocked all websites related to trading in cryptocurrency, which led to an immediate 15% drop in bitcoin and a 20% drop in Ethereum, the previous ban on Initial Coin Offerings (ICOs) in the country had a similar negative impact on its value.

Of course, cryptocurrencies are not the only investments subject to regulation, stocks in companies often fall as a result of government decisions affecting their business or regulatory crackdowns on activities.

For example: When the Financial Conduct Authority (the UK regulator) announces that it is reviewing a sector, stocks often go down, and tax decisions that affect different sectors of the economy can boost stock prices, but with cryptocurrencies, the volatility tends to be greater.

Current events

In addition to regulation, current events unrelated to a digital currency can have an impact on its price. Digital currency is often seen as an alternative to what is known as fiat currency, i.e. currency whose value is backed by the issuing government.

So when Coinbase investors lose faith in fiat currency due to economic or political events, they can turn to Bitcoin or its competitors, causing the price to rise. Some experts believe that digital currencies can replace ownership of physical gold as a “safe haven” asset.

Experts believe that millennials will use cryptocurrencies as an alternative to gold, although the World Gold Council says cryptocurrency is very volatile, however, when global politics seems volatile, we can expect cryptocurrencies to rise.

Cryptocurrency investors who lived through the internet boom know all about how speculation can raise or lower the price of an asset at the same speed.

Speculative investors hope to make money from cryptocurrencies, but they quickly buy and sell, negatively impacting the market or causing short-term fluctuations. Investors talk specifically about “whales” who are investors with very large amounts of a particular currency, whose speculative trades can have an impact big on the market.

Hacking

From the inception of Bitcoin to the proliferation of new currencies today, hacking has remained a problem for crypto investors, with every major hack of the system, crypto exchanges, or wallets causing a price crash.

As cryptocurrency technology becomes more sophisticated than ever, hackers are doing so too, so it seems likely that these negative events will continue.

Professional Trader and Analyst, economist in Financial and Forex marketsince 2004.holds an MBA from the American University in Egypt. Mohammed works as an economic writer and technical & fundamental analyst for many international Forex and financial trading companies in both English and Arabic on a daily basis.
Mohammed Abdelkhalik

Relevant news