The entire crypto world, and especially Bitcoin, stayed in the limelight for over a year now due to its amazing bull market phase, which has resulted in a high price of $50,670 in February. As the price of Bitcoin is growing, it attracts a lot of attention, not just from the media and speculators but also from serious institutional and retail investors. If you’re a newbie to the world of crypto, and you’re wondering how the price is formed and why it has entered another bull market phase, keep reading. In this article, we have included top factors that affect Bitcoin’s price.
Bitcoin and Blockchain Technology
Blockchain technology is one of the crucial reasons why Bitcoin exists separately from the traditional financial market. The technology is essentially a database structure that stores the transactions on an array of computer systems distributed across the world. The primary advantage of blockchain technology is that it is a fully decentralized, peer-to-peer network that operates on a set of transparent rules. In fact, the data of the transactions is viewable to members of the network and is immutable.
Only the miners are the users of the network who have the duty of approving, adding new blocks of transactions in the network. Whenever new blocks of transactions are added, new BTC enters into circulation. The reward for their work is Bitcoin tokens, also known as – block reward.
So, because the blockchain network is free from the control of any institution, the price of Bitcoin is basically formed under the influence of demand and supply. So, normally fiat currencies are impacted by monetary policies, fiscal policies, economic conditions, but Bitcoin’s price is determined by the ratio of supply and demand.
Online Exchange Platforms
Because bitcoin operates on a decentralized system, there isn’t one designated marketplace where it’s traded. Actually, there are is an abundance of online trading sites. That being said, they all set their own average prices, meaning there are insignificant differences in the price from one exchange to another.
So, really, the interaction of supply and demand on trading sites sets the average price, while there isn’t one global price. One excellent exchange site that relies on advanced technology. Its powerful trading algorithms, coupled with top brokers in the industry, make this a first-class trading system. You can start trading with Bitcoin Digital.
This is the most important event in the crypto community. It not only shifts the relationship between supply and demand of Bitcoin, but it also has a subsequent impact on other cryptocurrencies. The event Bitcoin halving is happening when 210,000 BTC are mined, or approximately every four years. Then the reward is cut in half, and with each having, it is not as profitable for solo miners to work on the blockchain network.
Now the reward is 6.25 BTC, while it was 12.5 BTC before the halving on 10 May 2020. So, the event slows down the circulation of BTC, and because the market demand increases at a faster rate than the supply, the price increases. Otherwise, the number of BTC that will ever exist is limited to 21 million BTC. Hence Bitcoin is a valuable and scarce asset.
As we mentioned earlier, there are a lot of trading sites right now, which means investors can quickly sell and obtain BTC. Nowadays, there are also a lot of institutional investors that are interested in BTC and this clearly affects the demand for Bitcoin. That said, it is very easy to sell or get BTC, and small events triggered by investors can have a big effect on the price of Bitcoin. But with the mainstream adoption of Bitcoin and other cryptocurrencies, we expect this to change in the future.