What determines the prise of Bitcoin

pre-view

The cost of Bitcoin soared in 2017, sparking a keen interest in this crypto asset. We can clearly see that from the number of search engine quarries for “how much is Bitcoin worth”.

To understand whether it is possible to make money with bitcoin, let’s explore what determines its price.

Contents:

1. Bitcoin price vs price of fiat currencies
2. Market factors affecting bitcoin’s price
3. Big players’ demand and supply
4. Hype and news
5. Limited supply
6. New safe-haven asset
7. Making money with bitcoin: Myth or reality

Bitcoin price vs price of fiat currencies

Fiat currencies and cryptocurrencies are not the same. The national currency is subject to centralized control. E.g. The value of the U.S. dollar in the United States is regulated by the central banking authority, the Federal Reserve System (FRS). If the FRS adopts a decision to weaken the dollar in an attempt to support the economy, it will start using special leverages such as lowering of the interest rates, and a quantitative easing program. Implementing interventions is also possible.

The market price of fiat currency depends on the economic environment. During a downturn, there is a decline in the currency’s value but when the economic situation is stable, the exchange rate goes up.

It’s not the case when it comes to bitcoin and other cryptocurrencies. Cryptocurrency is decentralized. The price of bitcoin depends neither on the economic health of the country nor the steps taken by the central banks.

Initially, the price of bitcoin was determined by how expensive it was to mine it. This included the electricity bills for mining coins and equipment. Ever since bitcoin got on the stock exchange and captured the attention of big market players, its price is now also affected by supply and demand.

Market factors affecting bitcoin’s price

Pricing in the cryptocurrency market largely depends on the balance of supply and demand. According to market law, the higher the demand, the higher the price. When the demand drops, so does the price.

Let's recall the year 2017. In January, the bitcoin price was below $1,000 and soared to almost $20,000 per coin by the end of the year. What’s the reason behind such a dramatic spike in prices? It is the increase in interest i.e. demand. The faster the price went up, the larger the number of investors who decided to invest in this asset to make a profit.

2018 was marked by the cryptocurrency turmoil in Asian countries when state authorities started banning this method of making money. Fears that the new asset would not be viable in the market because of the regulator’s ban caused a drop in demand. The investors started selling coins and closing long positions which led to a decrease in bitcoin’s price.

Bitcoin’s price: Cryptocurrency price chart

Not much time has passed since then but the cryptocurrency market has already reached an initial stage of maturity. Even though the key factors impacting the price have not changed, the new once have emerged.

Big players’ demand and supply

The distribution of supply and demand is what determines the price of bitcoin. This entails chiefly big market players, whose investments in bitcoin are worth millions of U.S. dollars. It is they who generate the key price movements, not the market crowd.

Traders can make money with bitcoins by predicting price movements. In order to understand the direction in which the bitcoin’s price will be pushed by big players, you need to keep a close watch on the factors of technical analysis.

Typically, it is possible to spot the “footsteps” of the big players on the chart based on the stages of position accumulation (price consolidation in a narrow range) and subsequent impulse price movements. Predicting the direction of the price in the short term (intraday) can be pretty challenging. However, you can see trading benchmarks for the bitcoin’s price on the medium-term timeframes.

Hype and news

In 2017 and 2018, the cryptocurrency market was highly sensitive to the news associated with bans and permits regarding bitcoin mining and trading, news about the hacking of cryptocurrency exchanges, etc. Today, the news still has a certain impact on the price but to a far lesser degree.

What makes it particularly tricky is that there is no way we can predict cryptocurrency-related news, except for those that happen in the blockchain. So, if you intend to make money with bitcoin, make sure to focus chiefly on technical analysis.

Limited supply

As previously mentioned, fiat money has an unlimited supply. The central bank can add liquidity which will expand it, causing a decline in the national currency.

However, this is not true when it comes to bitcoin since there are only 21 million coins that can be mined in total. This is why some experts believe that bitcoin is the best asset to invest in against the backdrop of the crisis. Today, the world's leading central banks have launched QE programs by increasing liquidity. The exchange of the national currencies is dropping due to an increase in supply but this poses no threat to bitcoin.

New safe-haven asset

The investors believe that bitcoin has the potential for becoming a new safe-haven asset, along with gold, the U.S. dollar, and the Japanese yen. For the time being, this is not exactly a prominent trend. However, as the years go by and the market grows to be more mature, the use of bitcoin as a safe haven may become a global trend. Under such circumstances, the bitcoin’s price will go up in turbulent times.

Making money with bitcoin: Myth or reality

Large investors have long woken up to the fact that bitcoin is here to stay, so they have added it to their investment portfolios. If you are a private trader or just looking for ways to make money with bitcoins, there are plenty of options to choose from.

You can start making profits with bitcoin by opening a trading account with Gerchik & Co. Being offered excellent trading terms and conditions, experienced traders can get started right away. There are also training programs designed for the newbies, where one can master the art of technical analysis, gain an understanding of the market intricacies, and learn how to track down big players’ actions.


Open an account and start making money with bitcoin now


What to know:


Do you wish to sell or buy digital tokens profitably?

Read, how to trade cryptocurrency profitably!


Login in Personal Account