Markedly, the drastic changes in Bitcoin’s cost have confused even professional statisticians. The case is even more shocking considering that the shifts in price are seldom similar to the rest of currencies or valuable items on the global market.
Indeed, Bitcoin is a new phenomenon in the worldwide marketplace. Yet, after a few years of thorough investigation, the experts have found an unknown group of affecting determinants that may cause the quick and sudden changes in the price of Bitcoin. In this article, we collected the most common factors to take into consideration while dealing with this cryptocurrency.
Which factors have an effect on the price of Bitcoin?
The majority of traders attentively follow the severe fluctuations of currency. In fact, the purchasers aim to spend as little money as possible when buying Bitcoin. Conversely, the sellers’ goal is to maximise the profit of the cryptocurrency. Still, you can barely name a price of Bitcoin that is good for everyone.
Whenever people discuss the price on a particular exchange, they refer to the recent value on the market that got an update on this exchange. Although there is no connection between exchanges, the price formation varies in different places.
There is a wide range of determinants that affect the formation of Bitcoin’s price on every exchange, and they are as follows:
Arbitrage trading
The first thing that keeps the prices relatively coordinated is Bitcoin arbitrage. It benefits from the price differences in different exchanges. Indeed, the impact of arbitrage harmonises the market. To illustrate, when Bitcoin costs less on CEX.IO while being more expensive on Coinbase, the traders prefer to purchase from the first one and sell on the latter one.
The Index Value of Bitcoin
If people discuss Bitcoin’s price, they generally refer to its cost in US dollars on leading stock exchanges as CEX.IO, Bitstamp or Binance. Also, they may mean the index price on the basis of multiple exchange costs as the Bitcoin Reference Rate.
The proportionality of a currency
Because Bitcoin doesn’t have an official exchange rate, some companies and online services suggest a weighted average price. They weigh the volume of the leading currencies’ spot prices and calculate the average number.
The BTC exchange rate on all exchanges depends on the cost of the received dealings. Because of this, arbitrage possibilities appear for competent investors who have plentiful capital.
Usually, people confuse the shifts in the price of Bitcoin with the ratio of buyer-to-seller. Nonetheless, it is the growth that causes the increase and decrease in price. Hence, the difference in the greatest bid and ask value is called the spread.
In case the purchasers are energetic, the traders see it instantly and start increasing the initial prices. Next, the process goes up to the point when the purchasing power wears off. Then, the situation becomes the opposite. With time, trends like this lead to surges or cutbacks in prices.
Factors that boost the price of Bitcoin
Many ponder what causes the growth in the Bitcoin price? Here are the determinants.
Liquidity
Conversely to the past, multiple people deal with BTC, even though Bitcoin regularly experiences changes in price owing to high volatility and market fluctuations.
Certainly, the support of exchange-traded funds leads to the rise of liquidity, causes monitoring of changes and allures the investors who lost their interest in the past.
Mass media
Without a doubt, magazines, television, radio programs and the Internet massively influence BTC. The mass media may lead to chaos in general publicity and cause the needed emotions by distorting the facts. Markedly, the mentioned effects were visible in 2017, which was the year of Bitcoin’s fame when it reached twenty thousand dollars. Also, mass media uses events like Elon Musk purchasing Bitcoins to attract people’s interest.
Although such popularity causes the price surge, it leads to a dangerous bubble. In the end, it ruins the market.
Storage
Frequently, the private investment funds are where most BTC investors keep a great deal of Bitcoin. This fact makes the general public perceive cryptocurrency as rare. Since it appears that demand is bigger than supply, BTC price strengthens.
Causes of the cutbacks in the price of Bitcoin
Certain factors make BTC price build-up, while others lead to a reduction.
Inexperienced investors
Notably, the worth of BTC depends on the actions of traders and purchasers on currency exchanges. The price volatility emerges from short-term margin trading and thin volume. As a result, the BTC cost goes down.
People overfill the market with tokens
Surely, whenever people offer too many BTC, the price decline is inevitable. Imagine that a government confiscated a large portion of Bitcoin from illegal activity. Next, these tokens go to the auction for a relatively low price. Such actions dump the BTC price.
Poor management of exchange platforms
The volatility of Bitcoin price increased after November 2013. What happened back then? In fact, the reason was insufficient control over the Mt. Gox exchange and its security issues.
In brief, the investors had problems with receiving costs from this exchange. In a span of three days, the cost of Bitcoin decreased by almost forty percent.
At the beginning of 2014, the situation became more even. Yet, MT. Gox faced bankruptcy later. As a result, in the first half of February, Bitcoin lost over $650 of its worth.
All things considered, multiple determinants have an impact on the growth and depreciation of Bitcoin. In this article, we listed the most obvious ones. Remember to take into account the high volatility of cryptocurrencies when purchasing them.
