When we speak about highly volatile assets, Bitcoin is one of those that should come to your mind. It has increased hundreds of percent only to lose more than half of its value in a matter of a few months. And did it more than once.
Learn about 5 factors that affect the BTC price and be prepared to trade its ups and downs.
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1) Supply and Demand
After all, Bitcoin is just another asset, though a tricky one. The price of Bitcoin, just as the price of any other asset, is not set in stone. The higher the demand (given the supply stays the same) the greater the price. And vice versa. Should the supply of Bitcoin on the market increase greatly, its price can be expected to go down. Of, course under the condition that the demand level has not changed. Turns out, basic economic concepts apply to cryptocurrencies, too.
2) Media Coverage
For more than a year already Bitcoin is surrounded by what you would call the most typical ‘hype’. Media coverage has an extremely big influence over the price of BTC. Here is how it works. Positive media coverage pushes the price up, negative one can make it go south in no time.
But it is not only about the tone of the media coverage, in case of Bitcoin any attention is good enough. The more people read about Bitcoin from mainstream sources, the more they are willing to invest in it. The same applies to well-known investors and businesses who expresses their support for Bitcoin.
3) Political Process
Politics may seem like it doesn’t belong to the world of cryptocurrency trading, but in reality, it always does. An economic downturn in Greece and a full-blown crisis in Venezuela has caused local population to heavily invest in Bitcoin and crypto in general.
What is the reason for that? Political disruption is always followed by the depreciation of the national currency. In case of Greece the consequences have been less vivid, yet still tangible. In case of Venezuela, Bitcoin has witnessed massive inflow of capital due to a depreciating bolívar.
4) Changes in Regulation
Completely unregulated several years ago, the cryptocurrency market can no longer claim its independence from the global financial system. Quite expectedly, when the total market capitalization of all the world’s crypto has reached a critical point, national governments set their eyes on Bitcoin and its younger peers.
Bitcoin is not being issued by any of the governments, but still they have the legal power to control mining and trading-related activities. Recognition of Bitcoin by some countries and its ban by the others has influenced its price.
5) Bitcoin Forks
Bitcoin, released in back 2009, can no longer withstand competition with latter-day cryptocurrencies in terms of technology. Bitcoin community is sometimes being split on a particular update or an innovative feature, destined to update the world’s most popular crypto. As a result, the original BTC blockchain has been split several times, spawning Bitcoin Cash, Bitcoin Gold and Bitcoin Private. Risks, associated with hard forks, bring the price down before the event.
High volatility is not always good (especially for long-term trades), yet it is still hard to deny massive trading opportunities it provides. Bitcoin, though not as volatile as back in 2017, still moves more in a month than an average S&P 500 ever will. Dare to give BTC a try?
NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.
Past performance is not an indication of future results. Also, leveraged products can carry a high degree of risk. eToro offers protective measures to manage risk effectively, but in rare occasions it is possible to lose more money than invested. This content is for information and educational purposes only and should not be considered investment advice nor portfolio management.