Economic factors that are normal influence the price of cryptocurrency as any other type of currency or investment such as demand and supply public sentiment, the news cycle market events as well as scarcity and other. According to Traders Union it is a brand new and emerging investment, additional factors influence the value of Bitcoin higher than that of the standard security or currency. Here are a few:
Scarcity
Between 18 and 19 million Bitcoins are available, and production will cease after 21 million. Experts in the field consistently mention this inherent scarcity as the primary reason for the cryptocurrency’s popularity.
Others point out Bitcoin is valuable because people consider it valuable. “That’s really why everybody’s buying — because of the psychological aspect,” says Nelson Merchan Johnson, the Johnson’s Light Node Media co-founder. It can be difficult for the average buyer to determine if Bitcoin or other cryptocurrencies are legit. The entire concept of demand and supply is only effective when people desire something that is scarce even if the item didn’t previously exist.
“It actually does almost kind of seem like a scam,” Merchan states about the origins of Bitcoin. While he’s said he’s witnessed his cryptocurrency holdings grow to thousands of dollars at times since he started investing in 2017, he’s witnessed them disappear within a matter of minutes.
“I’m a big believer that if it’s not in cash, you don’t really have that money because in crypto, anything can drop dramatically overnight,” Merchan declares. This is the reason that certified financial planners advise that you only allocate between 1% and 5% from your total portfolio into cryptoto shield your funds from the risk of volatility.
Mainstream Adoption
The rate at which new consumers are researching and purchasing Bitcoin is one of the main factors driving its price up. based on Waltman.
She asserts that the adoption of cryptocurrency technology is accelerating at a quicker rate than that of internet technology. If it keeps expanding, the exponential acceleration of new adoptions might keep pushing the price of Bitcoin upward.
The adoption of Bitcoin has increased by 113 percent, according to the data from the company that manages digital assets CoinShares. (Meanwhile people have embraced on the web at a lower rate of just 63 percent.) If users warm up to Bitcoin at a rate similar as the Internet’s beginning days (or quicker) (or faster), the report suggests it will have one billion internet users in 2024, and 4 billion in 2030.CoinDesk reported last month that the number of brand new wallets around the world increased by to 45% between January 2020 until January 2021, which equates to approximately of 66 million. The most popular cryptocurrency marketplace Coinbase states that it has more than 7 million users worldwide, and its rival exchange Gemini has recently published the “State of U.S. Crypto Report,” which revealed that 21.2 million Americans have cryptocurrency in some form.
Regulation
Federal officials have stated that they’re paying close attention to cryptocurrency. Industry experts have recently alluded to what crypto experts consider “hawkish” federal regulation as one of the major factors behind the slowing price of Bitcoin. In an recently-published CoinDesk First Mover interview, Seth Ginns, a CoinFund managing partner, stated that “the Fed moved to a hawkish position [on crypto regulation] just as Omicron started to tick up in the U.S.,” which could have led to more the doubt about crypto as a reliable asset, resulting in the negative sentiments of January.
Crypto regulations raise many unanswered questions. The president Joe Biden recently signed an infrastructure bill which requires all exchanges to inform the IRS of any transactions. In the same way, Treasury Secretary Janet Yellen recently declared that stablecoins — a kind of crypto tied in value to U.S. dollar — should be under federal supervision.
The debate on regulations has become “patchy,” said an industry white paper released in the name of Flourish the fintech platform specifically for financial advisors. With a relatively new asset class such as cryptocurrency, any new regulation could have the potential to affect the value.
When China had banned crypto in September 2021 investors, for example, saw the value of Bitcoin fall, however it has since rebounded and recommenced its normal fluctuation. Although there’s more than a decade of precedents for Bitcoin however, it appears that the Securities and Exchange Commission is making all decisions on a case by case basis. Experts call its “crawl, walk, run” approach to widespread adoption of crypto.
Mining Cycles
Another major factor on the price of Bitcoin is a process called halves. It’s complex and algorithmic by nature, but the halving process is actually part of an Bitcoin mining process, which results in the rewards for mining Bitcoin transactions being reduced to half.
Halving can affect the speed that new coins are introduced into circulation, which could affect what value you can get from your existing Bitcoin holdings. In the past, halvings have been associated with cycles of boom and bust. Specific experts try to anticipate these cycles to the day following the halving event has ended. Read this article to know some details on the bitcoin price forecast.
