The price of bitcoin has been anything but stable since its creation in 2009. But in the past year with new investments and business transactions happening over the blockchain, bitcoin has risen from below $1,000 to its current market cap of nearly $10,500.
Since bitcoin is not attached to any centralized bank or organization, its value is affected in unique ways compared to a traditional stock. In order to get a better understanding of what is happening with the price of bitcoin at any given time, it is important to know some basic principles that affect its overall price on the market.
Buying and Selling Activity
Similar to basic supply-and-demand principles, bitcoin’s price can be affected by how much of the currency is bought and sold during a given period of time. Since it has a fixed supply, its value will only increase with demand.
How many people are buying and selling is immediately public due to the transparency of blockchain technology. This can make the price very volatile, as the price can change at any given moment based on activity going on in the network. When bitcoin is being used by more people to exchange value, the more value it will inherently possess.
Articles that praise cryptocurrency have begun circulating through the mainstream and resulting in an increase in new buy-ins of bitcoin. These articles can have significant effects on the price of bitcoin at the time of posting due to the buying and selling activity they generate.
However, many new outlets tend to ignore the currency in downswings and praise it during upswings, making them simply a speculative surface-level interpretation. Even so, true crypto-enthusiasts understand the long-standing future of cryptocurrency as journalists begin to see why bitcoin has lasted as long as it has.
Regulations and speculation of regulations in the US and abroad play a large role in shaping price fluctuations within bitcoin. For example, in mid-2017, the Chinese government made headlines by issuing a ban on all cryptocurrency trading. During this time, people in China who held bitcoin or were working on cryptocurrency projects in general were stifled. This caused a drop in price. The price fully recovered in days, showing that regulatory events, unless permanent, may only have short-term effects.
Corporate giants Microsoft and IBM announced cryptocurrency integration in 2017, resulting in a sharp increase in price at the time of the announcement. The more businesses and big names attach themselves to bitcoin, the more popular the coin will be and the higher the price will climb.
Stability and Security
The stability and security of the Bitcoin network at any given time is a large determinant of its price. Currently, the Bitcoin network comes with steep fees and transaction times that are not fast enough to handle mainstream adoptions. If the network is lagging or not responding well, it may result in the selling off of bitcoin holdings by untrusting users. Similarly, when hacks occur or security is compromised, trust in the digital currency suffers, causing a decrease in price.
When the bitcoin network announced the “lightning network” upgrade to enhance the speed of transactions and decrease network strain, there was a large increase in price. The lightning protocol update showed the public that bitcoin’s functionality can be improved and that there is a dedicated team behind it.
As the price of bitcoin fluctuates, it can be hard to predict what will happen next without understanding the factors at play. The cryptomarket is sure to transform in 2018, and whether you are buying your first coins or have been on the blockchain for years, it’s important to stay one step ahead of the game. This way, you can weather the downswings and anticipate the gains yet to come.
This does not constitute investment advice. Please consult your financial professional if you have questions about investing in cryptocurrency.