If cryptocurrency is decentralized then what are the factors affecting bitcoin price?
Bitcoin is the first digital currency to be launched and its price has increased from below $1 to a current price of $16,000+.
That is a huge increase in p and this was achieved within just 12 years of launching bitcoin.
Bitcoin is said to be decentralized i.e. no one has control over it but its price has kept changing from time to time.
There are several factors that affect the price but the fluctuation in price is caused mainly by the users.
Major factors that affect bitcoin price
The adoption of bitcoin as a medium of exchange and as an investment is one of the main reasons why the price keeps going up day by day.
The price of bitcoin also follows the principles of demand and supply. When there is more demand for a particular commodity, the price of such commodity will increase.
The rising adoption of bitcoin by governments of different countries is a contributory factor to an increase in the price.
- Reward Halving
When a commodity becomes relatively scarce, the price will tend to increase.
One of the main supply of fresh bitcoin to the volume in circulation is mining.
Mining is the process of confirming new transactions on the blockchain which is carried out by a miner.
The reward for a miner is in bitcoin but once in four years, the reward per block is halved.
This process makes the supply of fresh bitcoin to reduce by 50% after halving whereas the demand keeps increasing.
So in order to meet up with the increasing demand, there will be an upward movement in the price.
- Use case
Many people perceive bitcoin as an international medium of exchange while some see it as an investment.
Some perceived it as a safe haven like gold while to some, it is an instrument to help improve financial inclusion.
Regardless of the adoption, the way the adopters perceive bitcoin is another factor that affects bitcoin price.
An individual that perceived it as an investment will likely buy more without selling and will make the demand to increase.
If such an individual now decides to sell all his investment at once, there might be more supply in the market than demand which will affect the price of bitcoin negatively.
- Government regulations
Regardless of being a decentralized system, cryptocurrency is also affected by government regulations.
A scenario was when the Chinese government placed a ban on bitcoin transactions within their country on the 5th of December, 2013.
The price of bitcoin fell by 50% and reached a low of $560 by 19th of December, 2013.
The price as at December 5, 2013 was about $1,100.
Government regulations also have direct impart on the price and negative policies or regulations can make the price of bitcoin to reduce and vice versa.