Most people know what Bitcoin is, or even how it works, but the frequent and seemingly instant fluctuations in its price can leave them confused. One minute you see it shooting up, and the next it’s dropping fast. What gives?
Unlike traditional assets like gold, Bitcoin doesn’t have a centralised institution backing it. It’s decentralised, digital, and still relatively new in the financial markets. That means a whole bunch of factors can shake its price.
Let’s break those factors down.
Supply and Demand
It’s the classic duo, and Bitcoin runs on simple economics. It has a fixed supply of 21 million coins, which means no central bank can decide to print more if things go south.
So, when its demand goes up and the supply stays the same, the prices go up.
But demand doesn’t rise for no reason. It can be influenced by hype, mainstream adoption, tech upgrades, or even just some tweets.
Other triggers include:
- Halving events. Every four years, the reward for mining Bitcoin is cut in half, which causes a spike in price due to decreased supply.
- Lost coins. A huge chunk of Bitcoin is estimated to be lost forever, which decreases the supply even more.
Media and Public Perception
Media plays a huge role in shaping public opinion, and public opinion plays an equally huge role in moving markets.
If a major outlet reports that a country is learning what is Bitcoin and adopting it, for example, the prices will surge. If the news is bad, like a hack report or a country banning it, then expect a price drop.
Also, never underestimate the power of social media. A single tweet from an influential person can send Bitcoin soaring or crashing within minutes.
Regulations and Government Policies
Nothing makes the crypto world panic like the word “regulation” when the entire idea of Bitcoin is based on the opposite.
Governments worldwide are still figuring out what to do with Bitcoin. Some have started adopting it, while others are still hesitant.
When new laws or tax policies are introduced, it creates uncertainty – the one thing investors don’t like. This can lead to sell-offs or cautious buying. But regulation can sometimes be a good thing if it brings legitimacy and protects users from scams.
Collective Adoption
The more real-world use cases Bitcoin gets, the more valuable it becomes. One of the basic rules of economics that applies here as well is that an increased demand is followed by an increased price.
So, the price of Bitcoin can be affected by situations like:
- Companies adding Bitcoin to their balance sheets
- Payment platforms supporting BTC transactions
- Banks offering crypto services
These moves add credibility and increase demand from both retail and institutional investors.
Global Economic Conditions
In times of economic instability – think inflation, currency devaluation, or geopolitical tension – people often look for a “safe haven” for their money. Usually, that haven is gold, but now Bitcoin is becoming a common option as well.
If people lose trust in their national currencies or banking systems, Bitcoin can seem like a tempting option, given it being entirely decentralised. This demand push can lead to a price increase.