The price of Bitcoin has risen exponentially during just over a decade from less than $1 in 2011. It was first made publicly available in 2009. Bitcoin’s price is primarily affected by its relative scarcity, market demand, supply, the marginal cost of production, and competing cryptocurrencies.
If you like studying more about the progress of Bitcoin, it is essential to read financial websites. You can follow the latest financial news on Fastbull to get more updates on Bitcoin.
The COVID-19 crisis sent prices of essential commodities plunging to some of their lowest levels in decades in early 2020. Oil futures in the US traded at negative values in April 2020. However, as economies recovered, energy prices escalated at a rapid pace. The geopolitical tensions in Europe also pushed up natural gas prices.
Global recovery and cold weather drive demand as oil-importing countries need to rebuild their stocks. Strong demand, disruption of supplies, and low inventories have sent oil prices soaring to their highest levels in seven years. Brent Crude Futures rose from $3 to $108.00 a barrel while Saudi Aramco raised Propane, Butane prices to the highest since 2014.
The upside of this development is Saudi Arabia has forecast economic growth of over 7 per cent in 2022. This year, the oil-rich kingdom’s banking sector, which came through a challenging 2021 relatively unscathed, could also benefit from higher interest rates. Analysts expect the economic growth to feed into the banking system, shoring up net incomes as the level of consumption bounces back to pre-COVID times. A policy interest rate hike by the US Federal Reserve, expected in March, will also play into the profitability theme.
Even though it is only a digital currency, Bitcoin commands a high valuation, with a total market cap of $1.11 trillion as of November 2021. The concept of a virtual currency is still novel, but Bitcoin is becoming less experimental every day with its increasing popularity.
Speculative investors purchase Bitcoin for its intrinsic value rather than its ability to act as a medium of exchange. However, the lack of guaranteed value and its digital nature means its purchase and use carry several inherent risks, especially since it is neither issued nor regulated by governmental monetary policies.
There are several factors why Bitcoin has such a volatile price history. Understanding the reasons that influence its market price can help you decide whether to invest in it, trade it, or continue watching its developments.
Supply and Demand
Like any commodity, Bitcoin’s price is influenced by supply and demand more than any other factor. Its market value is primarily determined by how many coins are in circulation and how much people are willing to pay. The cryptocurrency is limited to 21 million coins. Thus, Bitcoin’s price will likely fluctuate in response to the actions of big financial players who compete for ownership of Bitcon’s dwindling supply.
Speculation about price movements plays a critical part in Bitcoin’s asset value at any given moment. The demand for Bitcoin has increased because supply is becoming more limited. These investors also drive Bitcoin volatility. It is also partly driven by the varying belief in its utility as a store of value and method of value transfer. You can use it as a hedge against inflation and an alternative to traditional assets like gold or other metals.
Media plays a significant role in creating investor concerns, leading to price fluctuations. News outlets are businesses present information and predictions from ‘experts’. You often hear someone heavily invested in Bitcoin stating that the currency will soon be worth hundreds of thousands. Others promote newly invented cryptocurrencies to try and take away market share from Bitcoin. However, most of this speculation serves to influence Bitcoin’s price.
Investing money in Bitcoin is not risk-free because it rivals government currency. Some use it for dubious market transactions, money laundering, illegal activities, or tax evasion. Some governments seek to regulate, restrict, or ban the use and sale of Bitcoin. In 2015, the New York State Department of Financial Services finalized regulations that would require companies dealing with Bitcoins to record the identity of customers, have a compliance officer, and maintain capital reserves. China announced in 2021 that all cryptocurrency transactions or facilitation were illegal. Speculation about the impact of regulations will have on Bitcoin’s price in the short term is still being analyzed and debated.
As with any virtual system, Bitcoin exchanges are entirely digital and are therefore at risk from hackers, malware, and operational glitches. Hackers can target thousands of accounts and digital wallets where Bitcoin is stored. Given that all Bitcoin transactions are permanent and irreversible, it is a cause for concern.
There is also the risk from fraudsters and scammers who may attempt to sell false Bitcoins, which uses private key encryption to verify owners and register transactions. Bitcoin price manipulation is another common form of fraud.
As with any investment, Bitcoin values can fluctuate. There have been wild swings in price over its short existence. Bitcoin as a digital currency may lose value and could become worthless if fewer people begin to accept it.
You can use gold as a means of exchange for a very long time. Bitcoin is still in the price discovery phase. It means that prices will continue to change as investors, users, and governments overcome the growing pains and concerns until prices stabilize.