The talk behind Bitcoin’s volatility has been dropping as of lately, especially since the price stabilized at the $3,000-$4,000 range. As we have already seen, Bitcoin is prone to maintaining an increase in value, contributing to a general rise in the cryptocurrency market, after which it abruptly loses its value. Have we seen the best of Bitcoin then? Will it come back even stronger than before?
A lot of factors are involved in the formation of the current fiat currency values. These include the geographical location of the country issuing a particular currency, its GDP, and aspects related to the import of other currencies. However, none of these play a role in the formation of modern cryptocurrencies, Bitcoin included. Nevertheless, we regularly observe the phenomenon of price volatility. What are the reasons behind these price fluctuations? There are special factors affecting the growth and depreciation of bitcoin.
Factors that influence the growth of Bitcoin
- • Political instability. The lack of stability behind some fiat currency rates provokes people’s interest in alternative payment methods. One of these methods is cryptocurrency, and its pioneer – Bitcoin. Therefore, factors such as the confiscation of a large number of large bills from circulation in Venezuela and India, and the devaluation of the Chinese yuan, had a favorable effect on the strengthening of Bitcoin’s price.
- • Increased demand for Bitcoin as a means of payment. More and more Internet companies accept bitcoin as a method of payment. Currently, there is no unified cryptocurrency regulation system, and this makes it possible to exchange goods or services for Bitcoin. Meanwhile, in countries where the people are not sufficiently informed about cryptocurrency, bitcoin is practically non-existent. As interest in digital gold increases as a means of payment, demand for it will grow. Accordingly, the price will only strengthen.
- • Increased investor confidence. Demand creates supply. In this case, the demand is based on the increase in the level of confidence from investors, experts, and regulating bodies. Simply put, the strengthening of the Bitcoin exchange rate directly depends on how much society trusts and relies on it.
- • Simplification of Bitcoin’s utilization. When the system behind Bitcoin’s use becomes clearer and more accessible to new faces, including small companies and ordinary users, the desire to use it will increase, as will the price.
Factors that influence the decline of Bitcoin
- • Difficulties associated with the extraction and mining of cryptocurrencies. Mining has become a thing of the past for ordinary users, since nowadays, you’ll be paying more for electricity than you will be getting as a reward for mining. Rich enterprises have pretty much monopolized that aspect of Bitcoin, spending millions on super-efficient, cutting edge mining farms. Even for them, mining is becoming increasingly unprofitable, especially if the price doesn’t increase.
- • Bitcoin is highly dependent on the blockchain technology that supports it. Should the register that keeps all transaction data be subject to any significant attack, it will undoubtedly cause further price declines.
- • Hacker attacks on crypto exchanges. Recently, the largest cryptocurrency exchange in South Korea, Bithumb, was hacked. Despite the fact that many experts believe that this fact alone should not affect the cost of Bitcoin, the price has experienced a decline nonetheless, which is likely due to investor concerns.
Experts are convinced that the latest drops in price are mostly due to negative news from the world of the crypto industry.
Many analysts also believe that the major decline Bitcoin has experienced can be inextricably linked with the breaking of the leading South Korean crypto exchange Bithumb.
In addition, many believe that the situation was aggravated by the message of Western Union CEO Hikmet Ersek, who stated that the service does not intend to implement solutions to enable customers to make transfers in cryptocurrency.
Is it worth investing in now?
Hardly anyone will be able to unequivocally answer this question.
Despite the fact that major investors influence cryptocurrency markets all the time and manipulate the rate of digital currencies, the market itself is not and cannot be controlled by anyone.
With media related to cryptocurrencies being published every day, anyone can attempt to interpret what is happening in the industry and make their opinion known.
Whether to invest in Bitcoin now or not falls on the shoulders of each individual trader.
The formation of positive or negative trends in the crypto industry and society will depend on how the sector grows, how it eliminates its shortcomings, and how it will inspire confidence in digital currencies overall, both in existing and emerging ones.