In the past six months, I’ve seen Bitcoin’s price vary drastically from crushing lows to good highs. For the newly initiated, these drastic swings can seem a little daunting especially if you have sunk some hard-earned savings into Bitcoin as an investment vehicle. So what makes Bitcoin’s price change to these degrees? This post will hopefully shine some light on this question.
The laws of supply and demand
Most fundamentally Bitcoin’s price is driven by what the market is willing to pay. If more people are buying Bitcoin, then the price goes up. If people at selling more, then the price goes down. Economics 101!
Also, the market size for Bitcoin is small in comparison to other currencies and commodities. One small sell off of Bitcoin can cause the price to drop quite rapidly.
For new investors, this can sometimes be very unnerving and they sell on the way down, only for Bitcoin to then later to recover. For me, being aware of this swing will save investors money (for me, panic selling in crypto can hit you brutally – I know it did me in my early investing days). Market swing will reduce over time as the market place matures.
Hacking threats and general FUD
Hacking threats impact Bitcoin’s price in the short to medium term. No one is safe from these pesky digital highwaymen – both individuals and organisations. For example, Bitcoin exchanges have been repeatedly hit. In 2014, the world’s leading Bitcoin exchange of the time, Mt. Gox, folded after losing 850,000 Bitcoins (worth around $450 million at the time) and $8.5 billion by December 2017 – ouch!
Another catalyst for price dips, is the general media sowing fear, uncertainty and doubt (FUD). These news stories sensationalise the threat of certain activities such as Government action, the banning or ICOs and the immanent implosion of the crypto space. Post hysteria of the weak hands selling their Bitcoin, then the price recovers.
Bitcoin’s price and the bah humbug of Christmas
It seems every Christmas time the price of Bitcoin crashes. What’s the deal with this? Well, we most likely have the Far East to thank for this. One to two months leading up to the Chinese New Year or Lunar New Year, Bitcoin notably dropped in value.
This can be attributed to Asians cashing in on their crypto to spend on the celebrations (this region of the world is a massive crypto market). This is quite logical as the crypto market place is largely focused on the retail investor. Once larger institutions enter the space and then Bitcoin’s price volatility will decrease. January is perhaps not the best time to mortgage the house and lump it into crypto!
In conclusion, Bitcoin’s price is volatile, but we already knew that! For me, it gives the space a sense of excitement – a bit of cut and thrust, but definitely not one for the faint of heart. When the space matures, the swings of the past will be a distant memory – one that I’ll look back on fondly.
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