Just as the prices of currencies and stocks fluctuate due to multiple factors, the value of bitcoin also fluctuates. There are various factors due to which bitcoin's price fluctuates, and the investors and traders of bitcoin must be well prepared for the volatile market. Before we dig into the concept of learning the reasons or factors behind the rise and fall in the price of bitcoin, let's understand what bitcoin is. So, let’s see about the best cryptocurrencies to invest in, for this join the bitcoin app and start earning profits.
What is Bitcoin?
Bitcoin is one of the most popular digital currencies across the world. It is decentralized in nature that eradicates the involvement of government or central banks as regulators. Bitcoin first came into existence in 2008, and in 2009, this digital currency was released, and only a few times, it gained worldwide acceptance. Since individuals and businesses have started accepting bitcoin as a viable form of exchange, its price keeps on increasing and reaching new heights. But people who are already involved in bitcoin and those who are learning about it all have the same question in their mind, and this is why the price of bitcoin fall and rise or why does its market fluctuate?
Well, the answer to this question is that there are multiple factors that influence the bitcoin market, and due to this, its price keeps on increasing and decreasing. Let's have a look at some of those prominent factors that are as follows:
Supply or availability of bitcoin
As an investor, you should be aware of the fact that bitcoin’s supply is limited. Bitcoins aren’t printed or generated when required like traditional currencies. Individuals recognized as bitcoin miners do the work of mining bitcoins by solving the mathematical puzzles and verifying the transactions. Then the transactions are added into blocks, and blocks are validated to be added into bitcoin's chain known as the blockchain.
For their efforts and hard work, there are awarded in return. The block reward for miners is reduced by half after every four years. As there could be only 21 million bitcoins in the entire network, individuals are looking to buy bitcoin, and this is the main reason that results in high prices due to the high demand for bitcoin.
Sentiments of investors
Most of the individuals who invest in bitcoin have the motive of transacting bitcoin-like traditional currency or regular money. The rest of the individuals buy bitcoin for investment purposes. The investors who purchase bitcoin have the motive to earn profits over time with the increasing price of bitcoin, and later they think to exchange bitcoin with cash. As soon as the price of bitcoin increases, individuals start exchanging or selling their bitcoins for fiat currencies. When such a situation happens, the price of bitcoin is affected highly as a high rate of exchange specifies speculation, which is the main reason for price volatility.
Forks and Governance
Hard forks call for individuals or contributors like bitcoin miners that are involved in the verification and validation process of bitcoin by following the protocols and rules; this adds to the price volatility of bitcoin. When such things happen, some of the miners choose not to follow the new rules that arise due to fork for multiple reasons. In contrast, after a fork, those bitcoin miners that still followed the aged protocols are eradicated from the bitcoin network. Their bitcoins become the new currency, and this often has a direct impact on bitcoin's price.
Does Bitcoin make a good investment? Should you invest in bitcoins?
Bitcoin makes a good investment for those who invest by having a proper understanding and knowledge of the crypto market. There are many things that you must note down before investing your savings in bitcoin. That includes bitcoin isn't a legal tender, no regulatory body oversees bitcoin's operations and many more. Crypto experts often advise investors not to invest in bitcoin as there is always uncertainty that government may impose a ban on the trade of bitcoins heavily or its price may fall to zero. It would be best if you were highly careful while investing in bitcoin to enjoy maximum gains over time. Make sure to understand all the factors that include bitcoin’s price directly or indirectly.