As most of us may know by now, price volatility isn’t something that’s uncommon in the cryptocurrency space. If you aren’t sure about what volatility is, it refers to the tendencies of prices rapidly changing—whether it be for the better or worse.
Although that’s something that can be a little intimidating to newcomers, it’s volatility that draws investors to this space. All the crazy Lambo stories and people making millions are intriguing enough to draw anyone’s attention. In fact, we’re sure that it’s already swayed some of the minds out there—people hopping on the Internet, looking for a good place to start buying and selling crypto, and learning how to buy Bitcoin with a credit card.
Taking all that hype into account, have you ever stopped to think about what actually causes these prices to rise and drop?
Factors that affect cryptocurrency price
Before we get deep into it, it’s important to know that all the factors mentioned below are interconnected in some way. Most of them have to do with investor confidence—the willingness of people to get into the investment opportunities available to them. So before you start thinking about Bitcoin’s price, make sure you have an accurate Bitcoin converter by your side.
Without further ado, let’s get into some of the biggest factors that affect cryptocurrency price:
Supply and demand
Like any other asset on the market right now—whether it be cryptocurrencies, trading cards, or even NFTs (non-fungible tokens)—supply and demand have huge roles to play in determining their price.
If the demand for a particular cryptocurrency is high and the supply is low, prices may tend to rise. On the other hand, if the supply is high and the demand is low, prices may drop. It all basically boils down to how much there is to buy and how much people are willing to pay—and if today’s prices are any indication, it means that people are willing to pay a lot.
However, what makes Bitcoin unique is its limited supply of 21 million BTC. As for how that will play out in the future when all the BTC is in circulation, we’ll just have to wait and see. It’s estimated that the last BTC will be mined in around early 2140, so we have a bit of time before that happens.
Media and hype
Media and hype are other factors that play a role in price changes. Despite Bitcoin being the first cryptocurrency and it being over a decade old now, cryptocurrencies are still a new technology. This means that people are still learning about it and to stay updated in this fast-paced space, they look to news headlines, forums, and social media platforms.
Whatever you may see on these platforms may sway your perception. Additionally, whatever people around you say may influence you. People might choose to hype Bitcoin to drive its price, while others might hype other cryptocurrencies to take market share away from BTC.
Influential investor moves
Most people who are still learning the ropes about Bitcoin trading will often mimic the moves of a whale—someone that owns a significant amount of crypto. If, for example, a whale decides to sell off a big portion of their holdings, people could follow in their footsteps, and in turn, the market price can drop due to panic. On the other hand, if they decide to buy more, prices could rise due to increased investor confidence.
Government regulations
In the same way that media and hype could sway investor confidence, government regulations could do the same. Let’s say a specific country were to accept Bitcoin as legal tender; the price could rise since it’s seen in a more positive light by the public. However, if that country were to ban its use in all forms, prices could drop as it could be seen in a more negative manner.
Growing pains
Taking all these factors into consideration, perhaps what might be the biggest factor is Bitcoin’s age. Despite it being over a decade old, Bitcoin is still in its infancy stages—people are still figuring out how to use it and learning about how it works. This means that the price is still very much in its discovery phase and will continue to be until it finally stabilizes (whenever that may be).
Just think about how long some of the other assets have been around. Gold, for example, has been a means of exchange for thousands of years now. When you put that side by side with Bitcoin, it’s clear that the latter still has a lot of growing up to do. For now, all we can do is speculate and enjoy the ride.
