Bitcoin has been regarded as the most preferred token in this digital age. Its price is basically formulated as the current exchange rate of other altcoins and currencies in relation to Bitcoin. A look into the historical Bitcoin pricing shows a significant fluctuation of prices of the cryptocurrency. At one point in December 2017, the price of Bitcoin surged above $19,000 and currently, one Bitcoin is valued at around $7,493.51 as of 29 May 2018. There are various drivers responsible for these price surges. They include:
The involvement of government controls Bitcoin valuation in two major ways. Firstly, governments can control various assets through pricing, for instance, fiat currency, and in the international markets through trading in an attempt to stabilize the industry. Secondly, governments are capable of lowering the enthusiasm brought about by cryptocurrency, by introducing restrictions which inflate the overall cost of indulging in cryptocurrencies.
The latter suggestion is under consideration in various states in the USA. Regulation can also extend towards ensuring that Bitcoin becomes a limited resource by introducing restrictions on it. Therefore, government intervention significantly influences Bitcoin pricing. There are countries where Bitcoin trading and mining are banned, take Bolivia, Nepal, and others.
The self-regulatory approach involves a non-governmental body adopting rules and implementing industry standards. It also includes how mainstream media and the social media agencies promote or censor crypto usage and ads. Platforms such as Google, Facebook and Twitter have taken a step towards creating awareness and preventing its customers and users from using cryptocurrency services.
South Korea, for instance, set some rules on self-regulation that suggest cryptocurrency exchanges should:
- Manage their coins and that of their clients in separate ledgers;
- Raise a red flag for abnormal transactions and mitigate them fast;
- Highlight new cryptocurrency with advanced feature to facilitate client protection;
- Hold a minimum equity of $1.85 million won;
- Regularly publish audit and finance reports for accountability and transparency.
These regulations greatly influence the price of Bitcoin.
Demand and Supply of Bitcoin
Just like traditional currency, the price of Bitcoin is dependent on the forces of supply and demand. There is a policy that stipulates that the total number of Bitcoins can never surpass 21 million. There are more people seeking to buy and invest in Bitcoin than the number of Bitcoins available. This is mostly caused by inaccurate forecast or mere speculation that prices may raise in the future. The imbalance of supply and demand translates to the high pricing of Bitcoin. There is also a misinformed notion that Bitcoin is a sure gateway to wealth, and for this reason, there is an influx of naive investors seeking unprecedented gains for themselves. As long as there is a continued imbalance of demand and supply, the price of the crypto will continue to rise.
Undoubtedly, Bitcoin has grown increasingly popular and supports a number of users globally. Despite numerous challenges, a lot of well-known companies have started integrating Bitcoin into their payment systems. This widespread usage and acceptability have made Bitcoin transactions cross-border, a less complicated and a near seamless process. Consequently, the costs that were associated with the difficulty in engaging in Bitcoin business are removed. The recent mushrooming of businesses accepting cryptocurrency will positively affect the valuation of BTC and consequently entice potential investors.
Both frequent and first-time Bitcoin users are deeply interested in knowing how stable the network is. These enthusiasts prefer a network that guarantees security of their hard earned money. How stable the blockchain is, translates to enhanced security, convenience as well as transparency. Blockchain network has been described among the most disruptive technologies in recent times. For this reason, the globe as a whole is yet to adopt Bitcoin in the mainstream industries and still cannot be used as a payment method globally. For stability to be guaranteed, various stakeholders in the crypto business need to work unilaterally signifying utmost co-operation.
Current network instability highlights the presence of loopholes in the market, and a specifically notable concern is on security. Hacking, together with online fraud, is a grave concern when thinking of technology security. With the presence of hackers, holders of Bitcoin opt for a proven secure wallet and a secure cryptocurrency exchange. These security parameters tend to come with an increase in price.
The current hyper fluctuation of Bitcoin is perceived as an economic bubble, and people become skeptical in investing. If societies and organizations stop accepting Bitcoin as a medium of economic exchange, Bitcoin could potentially crash and lose its relevance. Therefore, the stability of the blockchain can have a significant influence on the Bitcoin price.
Changes to Technology
Technology is regarded as a very dynamic environment. Advancement in technology impacts Bitcoin pricing because it makes processes involved in transacting Bitcoin easier. For example, the incorporation of Bitcoin by major financial systems could create awareness as well as generate immense excitement among potential investors. Innovations, such as Blockstream, will deliver additional features to Bitcoin, which translates to an overall increase in valuation. This platform was established as a way of promoting various techniques of speeding up innovations to achieve a better cryptocurrency world.
Influence of media
Media is regarded to be of great importance in influencing the pricing of Bitcoin. The hype that is normally brought forth by the media can result to inflated prices, while news that is viewed as pessimistic can consequently be detrimental, hence resulting to a fall in Bitcoin’s price. For example, information highlighting hacks on Bitcoin wallets, or unforeseen volatility causes unrest to Bitcoin holders, resulting in reduced prices. Bitcoin price also drops when media delivers negative reports concerning regulations imposed by governments and the unwarranted engaging in the Bitcoin industry to proceed with dealings linked to laundering money.
The drivers affecting Bitcoin pricing are quite extensive. Learning these drivers does not really mean that the price of Bitcoin will follow a predictable pattern. However, getting to understand these drivers will equip the user with relevant information that can be used when making critical decisions in the crypto world.