Bitcoin price: understanding the factors behind the volatility

The Bitcoin price has always been an interesting and discussed topic - for investors, technologists, and regular consumers. It moves fast, often meteoric with fresh price news and other times subject to depressing corrections.

What causes the price of Bitcoin to move, and how can we understand the different factors behind the price movements of this digital asset over time?

The role of retail investors

Retail investors are thought to be behind propelling the price of Bitcoin higher. Retail investors are just the average folks who invest in Bitcoin on the various exchanges hoping that it gains value over time.

Since the cryptocurrency market is open 24 hours a day, 7 days a week to wherever you have an internet connection, the number of retail investors who can reap the profits is much higher — but profits and losses can be magnified too.

For example, you can check the Binance Bitcoin price live. Unsurprisingly, as you can technically be invested in mere minutes, that means you can also get into a trade or get out in minutes. The ease of access, paired with the hope of getting vast returns, leads to Bitcoin being of great appeal to investors.

Although, like all things, high returns don’t come without high risk.

Factors influencing Bitcoin’s price

Supply and demand: As with any asset, the law of supply and demand affects Bitcoin. The fact that only 21 million Bitcoins will exist, a resource as scarce as gold, makes more people holding the asset push its price higher. This is said to be one of the reasons many even call Bitcoin ‘digital gold’.

Market sentiment: The market price can be affected by good or bad news. The crypto market is known for its volatile nature. Everything from institutional acceptance to regulatory news can make the price go higher than a mountain or down as rubble.

Technological developments: Technological developments on the blockchain or network can drive the price of Bitcoin upwards. When new updates or developments take place in the network, a major fork, or anything significant, they drive the price fluctuations.

For instance, if there is a “halving” in Bitcoin supply, which is when the reward for mining a new block is halved, many times it will lead to a significant Bitcoin price movement.

External economic factors

Global economic conditions: Bitcoin is often referred to as a hedge against inflation and economic turmoil. In times of economic uncertainty or when fiat currencies are struggling, more investors flock to Bitcoin.

Government regulations: News of government regulations (good and bad) can impact the Bitcoin price. When governments release a cryptocurrency framework or legislation people generally either get excited or panic.

Institutional investment: Bitcoin as an asset became "real" with institutional interest. Tesla buying Bitcoin, investment funds offering Bitcoin exposure to their clients, and similar news will only continue to drive demand.

Bitcoin as a store of value

Although created as a peer-to-peer electronic currency, Bitcoin has transformed into a store of value, not unlike gold. Many investors now use Bitcoin as an inflation hedge and sometimes to diversify their portfolios. Even this kind of thing does help to increase demand. You know how it works — economic turbulence + innate human desire to protect their money from turning to dust etc.

Ever since people crowded in droves followed by financial institutions, Bitcoin has become one of the bucket-list assets that’s a part of every other investment portfolio. People, in general, go for stocks or real estate, and with Bitcoin, customers can earn those mileage points for diversification too. With enough liquidity, you can even outperform the market.

The future of Bitcoin pricing

It's hard to predict where Bitcoin will go in the future, even for hardcore traders.

However, as more countries are opening up to cryptocurrency and where the technicalities – i.e. blockchain is improving, the potential of Bitcoin in global finance is just increasing. By the looks of things, mass institutional adoption, technical improvements, and regulatory clarity could probably be the leading drivers of where it will go in the next few years.

Although the price of Bitcoin might stay excessively volatile, the truth is some external factors show the asset still has a long and bright future in the financial system. It’s in your best interest to be aware, stay informed, know what is going on in the market, and make conscious decisions based on the shortest, and longest-term factors that can weigh on the price of Bitcoin.

Navigating the ever changing Bitcoin landscape

Many items influence the price of Bitcoin. The price may be volatile, but it is that volatility that gives opportunities and, if not treated with care, challenges as well.

To make calculated decisions, keep an eye on the Bitcoin price and the factors that influence it. Using authenticated platforms like Binance can help you make real-time data interpretations to remain ahead of market movement.