Cryptocurrency pricing dynamics are primarily unstable. Bitcoin appears to be the most stable among cryptocurrencies as it is widely accepted with several use cases. Still, it is affected by price fluctuations due to the highly speculative nature of the cryptocurrency market.
Although BTC is decentralized, close observation of the bitcoin price chart will reveal the volatile pricing it has gone through over the years. Making accurate predictions about the value of BTC is nearly impossible because several factors affect its price.
Factors affecting the price of Bitcoin
The price of BTC is not set by central controlling bodies, e.g., central banks. A major advantage of BTC over fiat currencies is that no government can determine its pricing. Rather, it is subject to market forces and other factors affecting its use as a means of exchange.
Some factors affecting the price of BTC include:
Demand and supply
The price of BTC responds to the laws of demand and supply like any other asset in any market. If there is a high demand for BTC amid low supply, its price will rise. If there is a low demand for BTC amid high supply, BTC prices will fall.
The process of mining BTC consumes a significant amount of energy. BTC mining operations are believed to be contributing negatively to global warming. Many governments have clamped down on BTC mining operations because of energy cost considerations and cumulative effects. This inadvertently affects the price of BTC.
BTC regulations are another factor that affects the pricing of BTC. Due to its decentralized nature, governments are taking proactive steps to prevent rug pulls and other dubious activities that may affect investors. In countries with strong regulatory mechanisms, the pricing of BTC is relatively stable. At the same time, it is highly volatile in countries with lax regulations.
BTC speculations attempt to predict the future price of BTC. Investment experts tend to predict future prices by observing previous market behaviors and studying BTC price charts. Sometimes, these speculations hit the mark, and at other times, they may be completely wrong, thus, they can either produce gains or losses for investors.
BTC prices are sometimes manipulated by individuals or groups who influence the price through different deceptive means. They make members of the public fall for their gimmicks so that they can make gains at the expense of others.
Media attention is not favorable for the price of BTC. Heightened media focus means the pricing of BTC will be subject to serious scrutiny that may either increase or decrease its demand. This also will directly result in a rise or decrease in the price of BTC.
BTC prices always respond to these factors listed above. Studying these factors closely can give any investor sufficient leverage to determine a clear action path that will prevent losses due to the instability of BTC prices.