Bitcoin is a decentralized cryptocurrency based on blockchain technology. It holds a massive value in the market, but it keeps on fluctuating, making it a risky investment. If you want to make a profitable investment in bitcoin, you need to know the factors affecting its value. Some of the crucial factors affecting the price of bitcoin are as follows.
Demand and supply
There are several factors that have a massive impact on the price of bitcoin, but two of the most prominent factors are supply and demand. The price and demand have an inverse relationship as when the demand increases, the price will also go up. The other factor affecting the value of bitcoin is its supply. There are two ways in which the supply of bitcoin gets affects; the first is that there are a limited number of bitcoins that can ever be mined. It means the supply of bitcoin is limited, which makes it evident that with a fixed supply, the demand will increase, which will lead to an increase in the price of bitcoins. Bitcoin is a highly valuable currency, and its value will keep on rising till new users will keep on investing in it. There are numerous crucial factors that control the value if bitcoins but its supply and demand is the most important one.
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Media coverage
Media plays a vital role in today’s era as everyone watches its coverage and gets highly influenced by it. Media can influence the price of bitcoin to a great extent as if it covers the topics such as bitcoin, more people will get to know about its incredible features and will get attracted towards it. With more users being pulled towards bitcoin, it is evident that its demand will shoot up. Media coverage can affect the bitcoin’s value positively as well as negatively. If it focuses on the drawbacks of using bitcoin, people will be discouraged from using it, which will lead to a plunge in its demand, leading to a decrease in its value. It is the primary reason that investors keep a close eye on the news and latest updated because they know that it will help them to predict any fluctuation in the bitcoin’s price easily.
Competition
It is irrefutable that bitcoin is the first-ever cryptocurrency introduced in the world, but after its tremendous success, several new cryptocurrencies have been introduced in the market. With more competitors around, the value of bitcoin is expected t decline, which is why competition is another factor determining the price of bitcoin. But fortunately, despite numerous options in the market, bitcoin is still the top cryptocurrency with a massive market value. Usually, competition leads to a decline in the value of a cryptocurrency, but due to the excellent popularity of bitcoin, competition has no impact on it. It is fantastic news if you are planning to invest in bitcoin, as it is a clear sign that its value is going to increase in the next few years.
Government policies
Bitcoin is a decentralized cryptocurrency which means the government has no control over its operations and transactions. It has led to several issues such as frauds, scams, etc., which is the primary reason that the government of few countries has placed a ban on it, whereas some of them have imposed certain restrictions. Government policies related to bitcoins are changing continuously, which has made it impossible to predict the future of bitcoin. No one wants to invest in a currency whose future is uncertain, which makes government regulations and policies a significant factor affecting the price of bitcoin.
The authority can place a ban on bitcoin anytime, which is why people hesitate to invest in it. Fewer people investing in bitcoin means low demand, which will obviously lead to a decline in its price. Whenever any government introduced any policy related to bitcoin or place a ban on cryptocurrency, it is guaranteed to see some massive fluctuations in its price.
Adoption by the users
The value of bitcoin highly depends on how the users adopt it. If it gets accepted by the users in the future, its price will increase as its demand will incline. On the other hand, if people don’t accept it, its value will surely decrease.