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7 Reasons Why Is Bitcoin Dropping? Important Factors
Bitcoin is the world’s first digital currency and it has been very popular over the last years! A lot of people have made large profits by buying BTC for a low price and then selling it for a high price. Bitcoin has been one of the best investments you could have made in the last 5 years. But why is Bitcoin dropping? I am sure you already heard about the recent BTC price fall that followed the theft of more than $30 million worth of digital tokens from a cryptocurrency exchange. So, unsurprisingly, the BTC value has now fallen again.
If you would like to learn more about Bitcoin as one of the biggest cryptocurrencies ever, check our detailed article. Otherwise, keep reading to find out why BTC is falling.
Why is Bitcoin Valuable?
Bitcoin is a different kind of beast that can be difficult for people to understand. New things usually are. And while first cryptocurrency is nearly nine years old, it represents a completely new type of asset. It offers an efficient means of transferring money over the internet and is controlled by a decentralized network with a transparent set of rules, thus presenting an alternative to central bank controlled fiat money. There has been a lot of talk about how to price Bitcoin.
Fundamentally, Bitcoins derive their value just as anything else does: because people want them. Like any other currency, BTC follows the basic rules of supply and demand. Currencies have always been useful tools to make trade easier, enabling holders to convert goods into a widely tradable commodity through sale, then use the proceeds of that sale to purchase nearly anything they wish.
While fiat currencies derive value from the governments that back them, currencies like gold are valuable by themselves. Currently, BTC isn’t like other currencies in that it is not universally accepted. There are limits on what it can be used for. While not backed by any government or valuable by themselves, digital coins are still used as a store of value, a placeholder for goods and services that can be exchanged, as with traditional currencies.
Bitcoin derives its unique value from the fact that despite its lack of official backing or wide acceptance, it has generated an ecosystem in which many people are willing to trade and accept it. In fact, some perceive Bitcoin to be more valuable, or more useful, than other currencies in that it is a better option for certain purposes, such as seamless digital transfers and use across borders. Also, because there is a cap set on the total number of coins that will ever exist, the currency cannot be devalued through inflation as others can.
Another benefit of Bitcoin is known as “censorship resistance”. This refers to its ability to be used for transactions that could normally be censored by other payment networks. Using the most powerful computer in the world, it would take .065 billion billion years to crack a person’s private key. And it is all due to cryptography that defends cryptocurrency users from even governments and large companies.
The Bitcoin network is the most powerful computer in the world because it pays so-called “miners” in BTC to lend computing power towards securing the network. As the price of BTC increases relative to fiat currencies, miners receive higher fees, incenting them to devote yet more computer power, which makes the network more powerful and creates a positive feedback loop.
Because the vast majority of Bitcoin users believe the network is only valuable if it remains decentralized, a 51% attack would likely mean that as soon as an attacker gained control of 51% of the network, it’s value would drop to zero.
More significantly, if you had 51% of the hashpower, you could stand to make
$15–20M per day mining honestly. So, even if you have dishonest ambitions, it’s more profitable to just play by the rules.
This combination of the defender’s advantage and the positive feedback loop in mining creates a property called censorship resistance.
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In other words, anyone who wants to steal your cryptocurrency from your wallet by cracking your private key or to perform a 51% attack would have to bring such an enormous amount of computing power to bear that it would cost far more to steal the BTC than to simply buy it.
Censorship-resistant wealth storage in general, and Bitcoin specifically, may sound like a strange libertarian or anarchist perspective if you’ve grown up in a stable country. But with all of the crazy things going on in the world, the demand for censorship-resistant wealth storage is high and growing. Current markets which exist largely because of their censorship resistant properties include the gold market (est. $6 trillion) and the offshore banking industry (est. $20 trillion).
While payments are the first thing that people think of for Bitcoin, the reason that most people buy today is its utility as “digital gold”.
People are attracted to an asset that is provably scarce, nearly impossible to seize or censor, and part of a decentralized and permission-less network that anyone can participate in.
As a venture firm dedicated to the blockchain and crypto ecosystem, we’re constantly collecting data points from around the world. But one of my favorite anecdotes is a doctor in Brazil who has converted his medical practice one day a week into a “Bitcoin consultancy,” where all he does is help doctors and other people get set up with Bitcoin.
The main reason they want to buy? They’re terrified of wealth confiscation in light of a burgeoning public deficit. To be clear, they’re not rushing to put all of their assets into Bitcoin, but it’s a piece of a defensive strategy for some Brazilians to retain their hard-earned wealth.
What Determines the Price of Bitcoin?
The price of BTC is not the same as its value. Price is determined by the market in which it trades: by means of supply and demand. This is the same way the price of your secondhand car, a bag of apples in the supermarket, an ounce of gold and just about everything else is determined.
Just like most currencies, the cryptocurrency price changes every day. The only difference is that the price of BTC changes on a much greater scale than local currencies. It is the ongoing interaction between buyers and sellers trading with each other that determines the specific price of BTC (and everything else).
Bitcoin’s value is based on how valuable the market (the people buying and selling BTC) thinks it is. Think about some of the more physical things you can currently invest in, such as Gold. The price of Gold depends on its supply and demand. For example, when a new Goldmine is discovered, the price drops. This is because more Gold becomes available and so it is no longer as rare. So the rarer Bitcoin is, the higher BTC price predictions are.
So when determining a price, we must also consider the amount that buyers are currently willing to pay for the future value of a specific item. In other words, if the market believes the price of something – like property, a certain stock, or BTC – will increase in the future, they are more likely to pay more for it now.
The example of Gold is similar to how Bitcoin’s price changes. However, the price of cryptocurrency usually changes because of the news that is published about it. Here’s how it works:
- When there is bad news published about Bitcoin, there are a lot more people selling than buying BTC. These people sell their cryptocurrency for lower prices than the current value so that they can sell it quickly. This causes the price to drop.
- When there is good news about crypto, there are more people buying BTC than there are people selling it. These people buy cryptocurrency for higher prices than the current values so that they can buy it quickly. This causes the price to rise.
When Bitcoin was created by Satoshi Nakamoto, he set a limit for how many coins can be made — 21 million. This means that for as long as Bitcoin exists, there can only ever be 21 million — no more. So, if the popularity of BTC increases, so should the value.
Why Does the Price Change so Often?
This is called volatility, and it’s not only the BTC exchange rate that seems to change from day to day. The price of many things, such as stocks, currencies, oil and many other products can be quite volatile: moving up and down a lot against a base currency (such as the US dollar).
The total cryptocurrency market is still relatively small when compared to other industries. It doesn’t take significant amounts of money to move the market price up or down, thus, the price of a BTC is still somewhat volatile.
The price is up one day, down the next day… it has a history of being difficult to predict in the short term. Yet, a lot of investors like this. With prices that fluctuate regularly, investors can often buy BTC at a low price and then sell it at a much higher price.
There are other investors, though, that buy cryptocurrency to hold it for the long term — this is how a lot of people got rich! Some investors bought BTC over 5 years ago for super low prices (under $100) and held it until last year when it reached $10,000-20,000!
Why Is Bitcoin Falling?
Why is Bitcoin going down? Well, as mentioned earlier, the BTC price is always up and down and there are several reasons for that. However, a price crash in BTC or any other cryptocurrency is nothing new. “Digital gold” dies and comes back to life on a regular basis.
A whole slew of bad news has led to a huge downturn in the crypto economy. The market was shaken a few days ago as news emerged that more than $20 million in BTC was seized from illegal vendors on the Darknet by the Department of Justice (DOJ). Agents claim to have seized cryptocurrency mining devices, weapons, narcotics, $3.6 million in US currency and more than 2,000 BTC worth more than $20 million.
Another reason for the BTC price changes may also have been the most recent comments from Alibaba’s chairman Jack Ma advising traders to avoid trading in BTC. Speaking at a launch event for a new online-payment service for real-time cash transfers between Hong Kong and the Philippines, he said: “Technology itself isn’t the bubble, but Bitcoin likely is.”
Alongside this, the head of payments policy at Australia’s Reserve Bank – the equivalent of the Federal Reserve or the Bank of England – said cryptocurrencies’ strengths are also their weakness. In a speech delivered to Australian Business Economists, Tony Richards from the bank condemned Bitcoin’s transaction output, comparing the cryptocurrencies 4.5 transactions per second rate to Visa’s 65,000 transactions per second.
Even more, hackers managed to steal 35 billion won ($31.5 million) from South Korean exchange Bithumb this week, Reuters reports. The company has reacted by moving all of its users’ assets to “cold storage”, and placing a temporary block on all withdrawals and deposits. It isn’t yet clear who was behind the heist, but Bithumb assured affected customers that they would be refunded.
Some of the recent events might explain the current collapse:
- Bitcoin Cash Hard Fork
A hassle between the two groups of BCH communities (Bitcoin ABC and Bitcoin SV) led into the bonfire of the ideological debate. The hard fork finally took place on November 15, 2020, resulting in two competing chains Bitcoin ABC and Bitcoin SV. As a result, the value of BCH has suffered just as much as the rest and the hash rate war caused serious uncertainty in the market and this might be the reason for cryptocurrency market crash.
- Avoid Capital Gain Tax
It has been noticed that to avoid paying huge taxes, the investors are selling off their cryptocurrencies before April. People have recently realized that they are stuck with large tax bills and they are left with two options- either pay the tax or sell the cryptocurrency off. If the person is buying and selling the cryptocurrency in the same financial year, the individual would be taxed on short term capital gains which might be as much as 39% depending on the taxation bracket.
- Bitcoin Futures delay
Bakkt, a company owned by the New York Stock Exchange, recently announced their decision to postpone the launch of their highly anticipated Bitcoin Futures trading platform from December 2020 to until late January 2020.
- Google ban on cryptocurrency ads
Google has banned cryptocurrency ads, which might be one of the reasons for the fall. To justify its crypto ad ban, Google said that it was protecting its customers from fraudulent offerings, including but not limited to “initial coin offerings, cryptocurrency exchanges, cryptocurrency wallets, and cryptocurrency trading advice.”
However, starting in October Google allowed registered cryptocurrency exchanges to advertise on its Google AdWords platform, targeting the U.S. and Japanese audiences.
- Controversial Stablecoin
The U.S. Department of Justice (DoJ) has focused its investigation crypto market manipulation on whether or not Tether (USDT) was used to artificially inflate Bitcoin (BTC) prices during last year’s momentous rally. In late October, Tether redeemed and destroyed 500 million USDT from its treasury wallet; the action provoked yet further controversy given Tether’s recent loss of its U.S. dollar peg.
- Unlicensed securities of some ICOs
The first is the SEC’s announcement on Friday that the operators of two “Initial Coin Offerings” (ICOs) broke the law by selling unlicensed securities, and must pay fines and restitution. This development might be enough to spook some crypto investors, but it hardly comes as a surprise. Anyone paying attention to the regulatory space knew this was coming, and so much of the fallout should have been priced into crypto token prices already.
- GPUhardware sales declines
Crypto investors got panicked by bad news from chip-makers Nvidia and Advanced Micro Devices, which recently reported steep sales declines for cryptocurrency equipment. The sales declines suggest interest in crypto has waned and is unlikely to pick up anytime soon. This could explain the chill on crypto asset prices.
Long-term Factors Causing Bitcoin’s Price to Decrease?
Although many blame this crash on recent news, there have been several longer-term trends that you should be aware of:
- Bitcoin’s monthly trading volume has been decreasing for the past 4 months (on specific days it’s had large spikes, but using the monthly totals it’s been decreasing). Many consider low trading volume to be an indicator that price will also decrease.
- Interest in cryptocurrency on Google Trends has been decreasing since early February 2020 (this is likely a contributor to the decreasing trading volume). Is there a relationship between interest in Bitcoin & its fiat price?
- Very speculative: There have been several posts suggesting that Bitcoin follows an up or down trend between the 6th of each month, with many claiming that June 6th, 2020 was the point when BTC may begin going up in value again. Others have posted that because Bitcoin has started going down now, after June 6th, it will continue to go down until July 6th,2020, and may then either start going up again or continue downwards.
Let’s highlight the biggest Bitcoin drops through its history:
- In 2020, the price crashed 93% in five months.
- In 2020, the price crashed 57%
- In 2020, the price dropped 87% and lasted 411 days, ending in January of 2020.
- In 2020, the price crashed 59%
Some experts predict Bitcoin could continue to fall, with many suggesting the biggest cryptocurrency on the market could have found a new bottom. Previously, the bottom was thought to be at $6,100, but BTC dropped to $5,800 over the weekend, suggesting a new bottom could be about to hit the digital currency.
2020 hasn’t been a particularly good year for crypto holders. And the truth is no one really knows how long it’s going to last. If more countries create regulations/laws for cryptocurrency, more bad news will be published. This means we may see cryptocurrency crashing again. Countries such as South Korea, Japan, China, France and the United States all want to create new regulations.
Another Reason Why Bitcoin Is Going To Keep Moving Higher
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Why Bitcoin (BTC) Bulls Are Being Hopeful Again
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Bitcoin bulls are optimistic again and for good reason as we have seen the price climb back above the 200 moving average on the 4H time frame. This is a very bullish development short term which means that BTC/USD could keep on rallying further now that it has broken out of a range. The bears could once again be taken by surprise if the price moves against them and rallies towards 8000 in the most bullish scenario. In classical technical analysis the more the price test a certain level the higher the probability that it is eventually going to break past it. We have seen the price repeatedly test the 200 moving average and it has finally broken past it. The next target would be the 200-exponential moving average but the price is likely to break past it as well as there is a lot of bullish momentum building up at the moment.
The $7,183 level continues to be a very strong support. Until and unless we see a break below this level the price is likely to keep on rallying further or at least trade sideways for the foreseeable future. At the moment Bitcoin has found support above the $7,282 level and is eyeing further upside towards the $8,000 level. A sharp decline from current levels would be quite obvious and that is not how it happens most of the time in the cryptocurrency market. It is likely that we might see another move to the upside that would invalidate the symmetrical fractal that we have on the chart at the moment. It is premature to say if Bitcoin (BTC) will rise towards $8,000 or not but as long as it stays above the $7,183 level, we have no reason to be overly bearish on the market. Traders might want to keep an eye on the 200-exponential moving average because if the price breaks past it then it is likely to rally towards the 38.2% Fibonacci retracement level at $7,768.
Another reason Bitcoin bulls are more optimistic now is because of the changing outlook of the EUR/USD forex pair. The daily chart for EUR/USD shows that the pair closed its first day above the 200 moving average since June of 2020. This is an even more bullish development for Bitcoin than what we see on the BTC/USD chart. It is important to wait and look for follow-through before taking any side on this trade but it has now become clear that the EUR/USD forex pair might trade about this level for the foreseeable future.
It is possible for the pair to face some sort of rejection at the previously broken trendline support turned resistance but if we see a break past that trendline then we would have reason to be near-term bullish not only on the EUR/USD forex pair but on the cryptocurrency market as well. In any case it is important to realize that such bullishness is not likely to last for long. The price of Bitcoin is prime for a major decline in 2020 and we’re likely to see that happen in the first few months of the year well before the next halving. However, for now the price has stalled a decline below the $7,000 level and we might see some risk-taking return to the market in the near future.
Why is Bitcoin Going Down / Up? What Determines Price?
By: Ofir Beigel | Last updated: 11/14/19
Bitcoin’s price is probably the most commonly searched aspect of the digital currency. This post explains how the price is determined and what makes it go up or down.
Why is Bitcoin Going Down / Up Summary
Bitcoin’s price is defined by the last trade conducted on a specific exchange. Price goes up when buying pressure increases, and goes down when selling pressure increases. There are several major factors that can cause the price to go up or down such as:
- Media hype / FUD
- Lost of trust in fiat currencies
- Institutional adoption
- Supply shortage
- Dumping of coins on the market
That’s what affects Bitcoin’s price in a nutshell. For a more detailed explanation keep on reading, here’s what I’ll cover:
1. What is Bitcoin’s Price?
When talking about Bitcoin’s price, people are usually referring to either the USD price on a leading exchange (such as Bitfinex, Binance, or Bitstamp) or a composite price made from the average of multiple exchanges’ prices (e.g. CoinGecko).
When people talk about the price on a certain exchange, they mean the price of the last transaction made on that specific exchange.
So for example, if the price of Bitcoin on Bitstamp is $10,000, this means that the last trade made on Bitstamp was closed at $10,000. Once a new trade is conducted, the price will be updated accordingly.
As Bitcoin is a decentralized asset that trades on many exchanges and between countless individuals around the world, there is, in fact, no singular Bitcoin price.
Each exchange has its own price for Bitcoin, although these prices are usually quite similar. This opens the door to arbitrage opportunities for experienced traders with enough capital (explained below).
As there’s no official Bitcoin price, certain sites and companies make a composite index price available. This price is calculated by weighting the prices of various leading currencies by volume and combining them as an average.
For example, the Coindesk Bitcoin price index represents an average of bitcoin prices across leading global exchanges that meet certain criteria.
These indexes can be useful pricing mechanisms because they smooth out the effect of any unusual trading activity on a single exchange.
For example, say a large trader decides to sell 25,000 BTC on Bitfinex. The price will be greatly suppressed on that exchange and take some time to recover back to the international average price. An index price will show less of this localized disturbance over its duration.
2. What Determines Bitcoin’s Price?
Price discovery describes the process by which buyers and sellers meet on a crypto exchange to reach agreement on the price at which they’ll trade.
Buyers want to pay as little as possible for their Bitcoin. Sellers want to sell Bitcoin for as much as possible. Both must compromise upon a certain price before any trading can occur.
As I’ve mentioned before, the current price of Bitcoin, on any exchange, is simply the most recent price a buyer and seller have agreed to.
Let’s take a closer look at how buyers and sellers on a crypto exchange reach an agreement.
The Order Book
The trading interface on any standard crypto exchange features what’s known as the “order book.” It’s not a real book of course—rather the display page for market information that relates to the execution of buy and sell orders.
On the buy side of the book are listed all the standing offers to buy Bitcoin at a certain price—also known as “bids.” On the sell side are all the offers to sell Bitcoin at a certain price—also known as “asks.”
Recent trades are often displayed too, in a list and/or chart format.
Here’s an example of BitStamp’s real-time order book, as displayed via the interface of BitcoinWisdom.com:
Asks are listed at the top right; showing the price the sellers want for their coin and the number of coins they are willing to sell.
Additional asks are present in Bitstamp’s order book, but only a dozen or so asks that are closest to the last price are visible here. Below are the closest bids, showing the price and number of coins the buyers want.
At the bottom is the trade history, which shows how many coins were traded and at what price. The most recent trade will be the one that set the last price.
This last price reflects the current valuation of Bitcoin on the exchange—in other words, the current Bitcoin price. It will change only as further trading occurs.
Makers and Takers
Bitcoin’s price movements are often explained away as more buyers than sellers, or vice versa. In practice, this isn’t really true since it always takes two parties to trade (if someone bought Bitcoin, someone else sold it).
What really drives the price up or down is the side that’s more aggressive in “crossing the spread.” The spread is simply the difference between the best bid and the best ask price.
In our Bitstamp example, the best bid (i.e. buying price) is $9,350, and the best ask (i.e. selling price) is $9,400, so the spread is $50.
Whichever side is more motivated to trade will pay the $50 spread cost in order to execute the trade immediately. This side is known as “the taker,” as it’s taking the offer listed in the order book by “the maker” (the person who created the trade).
Let’s say that multiple buyers, convinced that price will hit $10,000 by Friday, are acting as takers.
Buyers believe they’ll profit by buying below $10,000. This makes them more likely to pay the spread to buy up all the coins on offer at $9,400—they expect to make $600 minus the $50 spread.
Once buyers have absorbed all the coins offered at $9,400, the next best ask then becomes coins offered at $9,450—and after that, coins offered at $9,500, and so on, up the ask list.
If buying is aggressive, sellers soon realize it and start raising the prices of their asks. This continues until buying pressure is exhausted, at which point the process will reverse. Over time, these impulses drive the price up or down.
This process happens across all Bitcoin exchanges. What keeps prices more or less synchronized across exchanges is the process of Bitcoin arbitrage, the trading strategy that takes advantage of the price differences between trading venues.
For example, if Bitcoin is cheap on Bitstamp but expensive on Coinbase, then traders will buy on Bitstamp and sell on Coinbase. The effects of arbitrage are what keep prices aligned across exchanges.
Finally, it’s worth noting the effect of market-leading exchanges. Those with the highest volumes (i.e. the highest number of coins traded) tend to be considered as having the more “official” price.
For example, if Bitcoin’s price spikes on a major exchange such as Bitfinex, Binance, or Bitstamp and especially across several major exchanges at once, then it will almost certainly lead all other global exchanges to have higher prices too.
The reason for this leading exchange(s) phenomenon is simply that most traders pay close attention to major exchange prices.
Traders have the expectation that prices on major exchanges will filter through to minor exchanges due to the effect of arbitrage effects and the belief that other traders will act accordingly.
This leading exchange effect occurs even across exchanges that use different currencies.
For example, if Bitcoin that’s being traded in a high-volume country such as Japan, where it’s priced in JPY, starts dipping below the average international price, that’s likely to act as a drag on prices in USD, EUR, and other markets too.
3. Why is Bitcoin Going Down?
Now that you understand what Bitcoin’s price is and how it’s determined, let’s go over some events that can make Bitcoin’s price plummet.
Price Near All Time High
Often when Bitcoin’s price reaches a point near a recent all time high, price resistance is met and the price fails to cross the previous high.
This is attributed to the fact that many traders place sell orders near historical all time highs. Therefore, when the price reaches these points, a selling pressure is felt that brings the price down.
FUD stands for Fear, Uncertainty, and Doubt. Media FUD happens from time to time when Bitcoin receives very negative press. Here are some examples of how Bitcoin has been declared dead over 350 times throughout the years.
This type of media FUD can cause mass panic and increase the selling pressure as people lose faith in Bitcoin.
Keep in mind that more often than not the media is looking to make headlines and generate interest rather than conduct extensive detailed research. So don’t rush to sell the moment you hear Bitcoin is dead yet again.
Dumping Coins on the Market
As a general rule, whenever a large amount of Bitcoins is being sold on the market, it will drag Bitcoin’s price down since the sell pressure increases.
For example, in certain cases, the FBI or different authorities seize substantial amounts of Bitcoin from illegal operations. When this happens, they usually auction off these Bitcoins to the public.
Since authorities aren’t geared towards maximizing profit and a usually large amount of Bitcoin are being auctioned, they are normally sold below the market price.
This, in turn, causes Bitcoin’s price to drop, as the auction winner usually sells some of his newly acquired coins on exchanges as well.
4. Why is Bitcoin Going Up?
There are also certain events that increase buy pressure and make Bitcoin’s price go up. Let’s go over some examples.
Crossing an ATH
If Bitcoin’s price crosses a certain all time high, in many cases this generates positive buying momentum which increases the price even more.
Having said that, when extreme buying momentum occurs it’s highly likely a sharp drop in price will soon follow (also known as a correction). If you’re taking advantage of a buying momentum, keep this in mind and consider taking some money off the table before this happens.
Media Coverage / Hype
The same way media FUD can generate panic and selling pressure, media hype can generate increased buying pressure.
This was evident in 2020’s great Bitcoin rally when the price neared $20,000. Every other day Bitcoin was covered in the news, generating increased adoption, interest and mainly speculation from the masses.
The saying “buy the rumor, sell the news” implies that whenever the media coverage kicks in, it’s time to be wary about the price since a correction may soon come. So while initially, media coverage drives up the price, it can also cause it to crash if it rallies too fast.
Lost of Trust in Fiat
One of the major drivers behind Bitcoin’s price surge throughout the years was lost of trust in traditional fiat currencies (USD, EUR, GBP, etc.).
When people lose trust in their own currency (e.g. inflation) or banking system they look for an alternative to store value that isn’t controlled by any government or bank. Usually, Bitcoin, among other assets such as gold, is a popular solution.
When a major retailer or financial institution starts accepting Bitcoin, it usually signals the market that Bitcoin is becoming more mainstream. This may cause the price to rise due to speculation of future mass adoption.
Another major price driver is said to be the approval of Bitcoin financial instruments such as Bitcoin ETFs and Bitcoin futures. These financial instruments allow big institutions such as banks, hedge funds, etc. to invest in Bitcoin without actually buying the currency.
Some believe that if major market players consider Bitcoin a legitimate investment, it’s only a matter of time until the general public starts investing in it as well, increasing the buying pressure.
Another main driver behind increased buying pressure is shortage in supply. Bitcoin’s supply is capped at 21 million. Until today, over 85% of this amount has already been mined.
Today, every 10 minutes on average, another 12.5 Bitcoins come into existence, however, this amount is halved every 4 years or so.
Some believe that Bitcoin’s halving event will drive up Bitcoin’s price as a shortage in supply of new Bitcoins will occur. The next halving event is scheduled for June 2020.
5. Frequently Asked Questions
Why Does Bitcoin’s Price Fluctuate?
Bitcoin’s price is extremely volatile. It’s not uncommon to see price movements of 5% or even 10% in a single day. The reason for these fluctuations is that Bitcoin’s market cap is still relatively small.
The market cap = Number of Bitcoins in circulation * Price per Bitcoin.
Usually, the smaller market cap an asset has, the more volatile it will be. Imagine throwing a rock into a small pond. Now take the same rock and throw it into the ocean. The rock will have much more effect on the pond than on the ocean.
In the same manner Bitcoin (the small pond for now) is more volatile (i.e. affected) by everyday buy / sell orders (the rock). When Bitcoin’s price increases, so will the market cap and the price movement will gradually decrease.
Bitcoin’s price will probably continue to fluctuate until mainstream adoption will arrive. For now, big buy or sell orders by Bitcoin whales disrupt the market as the market cap isn’t big enough to withstand them.
The current unstable worldwide financial system may prove to be the final push Bitcoin needs to skyrocket, however, it’s anybody’s guess if indeed that scenario will play out.
What are your thoughts about Bitcoin’s price? Will it skyrocket, plummet or just stay the same? Let me know your thoughts in the comment section below.
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