Bitcoin is a volatile asset whose price changes frequently. As a new cryptocurrency investor, it is important to understand what is causing these changes and how they will affect the way you trade. buy bitcoin.
Bitcoin is a decentralized asset, meaning its distribution is not controlled by central banks or governments. Also, because it is not a corporation, it is not subject to stock market control.
So what is responsible for the notable highs and lows of the cryptocurrency market? How can you predict price changes and how will this affect your trading journey? This article covers it all.
Let’s begin!
What is the price of Bitcoin?
Bitcoin price represents its exchange value against traditional currencies such as the US dollar, Euro, and Australian dollar. Because it is a decentralized asset, its distribution and price are not controlled by a central bank or government, so its price fluctuations are different from other financial products.
Bitcoin is considered a volatile and high-risk asset because it experiences impulsive and rapid price fluctuations. One notable change in the price of Bitcoin that had a major impact on the cryptocurrency world was its surge to nearly $20,000 in December 2017. This bull market has captured global attention and successfully attracted both cryptocurrency enthusiasts and skeptics. However, this surge was followed by a bear market that sparked debate about the long-term viability of cryptocurrencies.
At the time of this writing, Bitcoin has a total market capitalization of $1.1 trillion and is trading at around $37,000, regularly hitting highs and lows.
What Affects Bitcoin Price?
Bitcoin price is influenced by a variety of factors, including market supply and demand. When demand exceeds supply, prices tend to rise, and vice versa, prices tend to fall.
Bitcoin operates on a fixed supply model. To maintain a certain level of scarcity, the maximum supply is limited to 21 million coins. Limited supply tends to put pressure on prices as demand increases due to factors such as institutional adoption or increased interest from individual investors.
In addition to general supply and demand, other factors also affect the overall value of Bitcoin. Let’s look at some of them:
Market Sentiment and Speculation
Market sentiment refers to the emotions that drive cryptocurrency investors to place buy or sell orders. This factor explains some of the impulsive changes in interest rates that the market has experienced over the years.
Positive sentiment is often triggered by institutional investment news or new regulatory developments, which causes traders to buy into a frenzy and often results in price spikes. Conversely, negative emotions due to economic downturn, fear, and uncertainty can trigger selling, causing prices to fall.
regulatory developments
Another factor affecting the price of Bitcoin is the enforcement of regulatory laws. Although the government does not control Bitcoin, there are still laws and regulations that guide the exchange of this commodity in certain regions. If there is uncertainty about the regulatory framework for Bitcoin or cryptocurrencies in major markets, this could impact investor confidence and, consequently, prices.
technological advancement
Technological advancements and innovations within the Bitcoin ecosystem may also affect the price of this product. Bitcoin operates on blockchain technology, and over the years, the application of this technology has gone beyond cryptocurrency to other industries such as cybersecurity and data protection. The effect of this increased adoption tends to affect the price of Bitcoin. Additionally, as the network is upgraded and new trading features are created, investor confidence increases and affects the price of Bitcoin.
macroeconomic factors
Bitcoin prices may not be affected by the same factors that affect other financial markets, but they are also not influenced by broader economic trends. Factors such as economic instability, currency devaluation, and inflation often affect the price of this digital currency. Many investors choose cryptocurrencies as a hedge against inflation and recession. In fact, the creation of Bitcoin in 2009 was intended to provide a hedge against the global economic crisis.
Market liquidity and trading volume
Bitcoin’s liquidity and trading volume are also essential considerations. Liquidity refers to how easily and quickly Bitcoin can be bought and sold. Higher liquidity generally leads to smoother trading. Market size, on the other hand, shows how much Bitcoin is being traded. Higher volume means more interest in the product, which affects the price. Therefore, if Bitcoin experiences high liquidity and trading volume, it may contribute to its price becoming more stable or predictable. If this value is low, the price may be more sensitive to large changes in buying or selling.
How do I know when the Bitcoin price will change?
Bitcoin may be volatile, but it is not unpredictable. By studying price charts and looking at past price movements, you can gauge where the price is headed. If you are just starting out in cryptocurrency trading, you will want to acquire certain analytical skills to help you make better trading decisions. they:
- Research market factors: This skill involves learning about factors that affect the price of Bitcoin, such as news, current market sentiment, etc.
- chart analysis: Use price charts for technical analysis. Find trends, patterns and support/resistance levels to predict market direction. You can access these tools on cryptocurrency exchange platforms like Independent Reserve.
- Understanding Metrics: You will also want to learn about indicators such as moving averages, RSI, and MACD to gauge market conditions.
- Stay informed: Staying updated on news and events that may impact the market is also an essential skill. You might want to join a cryptocurrency community where experienced traders share their insights.
conclusion
Technical analysis and research help you gauge future market movements and make informed trading decisions. Nonetheless, it is not a substitute for risk management. Risk management refers to the actions taken to prevent more losses than expected. Invest only what you can afford to lose, keep your Bitcoin refrigerated, diversify your investment portfolio, and avoid excessive leverage.