Factors that affect the value of Bitcoin

Bitcoin Satoshi Nakamoto became the first new type of asset, which is now called a cryptocurrency. The authenticity of the cryptocurrency and each transaction is protected by digital signatures corresponding to the sending addresses, which allows all users to have full control over sending bitcoins. Therefore, there is no fraud, chargebacks, and no identity information that can be compromised, leading to identity theft.

At the same time, the exchange rate of bitcoin, like any other currency, depends on many factors. Knowing the factors that directly affect the exchange rate of bitcoin against the dollar and other currencies, you can better understand and predict the events that occur on the crypto market.

It is worth noting that the world of cryptocurrencies is still unknown and is new in nature, respectively, the influence of these factors may be aggravated.

However, let's look at the main factors that affect the exchange rate of bitcoin in dollars or other currencies.

Internal factors affecting the bitcoin rate

1. Limited emission. The number of bitcoins that can be mined is 21 million coins. Hence the comparison of btc with gold, the amount of which is also limited. And this, in turn, is a direct factor affecting the bitcoin exchange rate and the hype that is constantly increasing around this cryptocurrency.
2. Bitcoin decentralization. Unlike fiat money, electronic assets are not controlled by the state, their rate is not determined by the conditions of the global economy. Bitcoins, like other cryptocurrencies, are assigned to their owner and only he can dispose of them. With fiat funds, the opposite is true - if the money is stored on a bank account, then this financial institution can dispose of it, it has the right to block and withdraw these funds. Against this background, fiat money began to lose its credibility. Bitcoin, on the other hand, began to attract more and more attention of users to investing their free funds in this electronic currency in order to save their assets from inflation.
3. Issue of coins according to the rules. Once every 4 years, the supply of bitcoin coins is reduced by half. This payout limit rule was written in the cryptocurrency algorithm itself in order to regulate the process of the appearance of a large number of coins. In such a cunning way, fewer and fewer coins appear in circulation, and the level of supply and demand on the crypto market can be controlled.
4. Network complexity. Cryptocurrencies got their decentralization thanks to mining. And in order to “cope” with the instant production of all 21 million bitcoins, Satoshi Nakamoto introduced some rules: the completion time of 1 blockchain block should be generated every 10 minutes, approximately. Accordingly, if the capacity of the mining equipment grows, then the complexity to support the given time is recalculated. In addition, network complexity has a huge impact on the entire bitcoin mining process. The higher it is, the more powerful the equipment you need to use for bitcoin mining. This makes many miners give up bitcoin mining, because it simply becomes unprofitable and financially unsustainable for them. This phenomenon threatens that the majority of mining capacities will be in the hands of a few giant data centers. Therefore, this may indicate that bitcoin can become centralized, like fiat money, and this is by no means a plus for investing in this currency.

In addition to all of the above internal reasons, there are many external factors that directly affect the bitcoin rate. By their nature, they often cause a sharp drop or rise in the bitcoin rate.

1. The law of supply and demand. The demand for bitcoins works on the same principle as for gold or any other valuable resources (assets). The more new crypto investors appear on the market, having a desire to purchase a bitcoin coin, the more actively bitcoin is distributed as an asset or payment unit, the higher its rate will be.
2. Information and media influence.  Various studies have shown that the media is the most important source of influence on the price of Bitcoin and other cryptocurrencies. Greater media coverage is leading to a better understanding of cryptocurrencies and bitcoin by the general public. This could potentially attract new people to invest in cryptocurrencies. Positive media coverage of bitcoin and the rapid spread of this information in social networks will usually lead to an increase in the price, while negative coverage will have the opposite effect on the price of the cryptocurrency.
3. Mainstream and distribution. Over its history, bitcoin has come a long way - from an unknown electronic currency to a very popular means of payment. Now for bitcoins you can buy various goods, pay for services and even travel. The more distribution and demand for use a cryptocurrency has, the more attention it attracts to itself, the higher its rate will be.
4. Legislation. Each state perceives cryptocurrencies in its own way: someone has already begun to regulate them at the legislative level, while others are still afraid of them and consider them currency schemes, etc. Today, many countries have seen the potential in bitcoin and have changed their negative attitude towards it. For example, after the United States recognized bitcoin as a commodity, its rate increased significantly, which indicates a direct dependence of the price of the crypt on the legislation.
5. Market practice. Large players on the crypto market (they are also called “whales”) can cause an artificial change in the value of the crypt, as evidenced by a sharp fluctuation in the bitcoin rate. “Whales” have enough assets, so they can massively buy crypto-currency coins (pumping), which causes artificial excitement. At the same time, beginners or, as experienced traders call them, “hamsters”, against the backdrop of this hype, also begin to buy coins at inflated prices. After that, pumpers, when they wait for the peak value, sell coins (dump) at a high rate, as a result, the rate of the cryptocurrency drops sharply.
6. Politics. As with traditional currencies, political events have an impact on the exchange prices of various cryptocurrencies. However, the change in the price of bitcoin caused by political events is usually the opposite of what happens to central bank currencies. The lack of confidence in the country's economy makes people give a chance and believe in cryptocurrencies, and not in traditional currencies.

The cost of bitcoin is a kind of indicator of the entire cryptocurrency market, so changes in its rate are sensitive to many factors. With a high probability, it is almost impossible to predict further changes.

You can find out about the current exchange rate of bitcoin against the dollar, as well as get acquainted with other information about cryptocurrency and news from the world of cryptocurrencies and blockchain on our website!