Bitcoin (BTC) is the most known and oldest cryptocurrency in the world. Countless people from all around the world want to make money through BTC investments. Any investment relies on what drives prices up or down. This is why one of the most important skills an investor needs to have is fully understanding the factors that drive Bitcoin price.
It does not matter what you want to do with your BTC. You can exchange them to be eventually used in ETH games or just keep them in your account to wait until the value is very high. In all cases, you have to understand that the Bitcoin price is mostly influenced by this:
- Bitcoin supply and market demand.
- How much it costs for a Bitcoin to be mined.
- How many competing cryptocurrencies are very strong.
- Regulations.
- The crypto exchanges used.
- Rewards issued to the miners when blockchain transactions are verified.
- Internal governance.
The Important Takeaways
It is different to buy BTC and buy stocks since price evolution follows a totally different process. When you invest in traditional currencies, the difference is even more visible. BTC is not connected to a bank or is backed up by any worldwide government. You do not have to worry about various things like economic growth measurements, monetary policy, and others.
The price of one BTC is clearly influenced by the factors mentioned above. These are the ones to take into account, with some extra things that should be remembered.
Demand And Supply
Central banks can clearly impact regular currency exchange rates. One of the ways to do this is to increase supply whenever desired. With Bitcoin, supply is not impacted by a third party. A new BTC is put in when a miner processes transaction blocks. Then, we have a cap of 21 million maximum BTC that can be mined. Simply put, supply is clearly identified and nothing surprising can happen.
When it comes to demand, this is one of the most important things that control BTC prices. When people want more BTC, prices obviously increase.
Competition
Bitcoin is by far the most-known cryptocurrency but there are hundreds of other options that people can look at. This includes ETH, XRP, LTC, and EOS. Whenever good news appears about a specific cryptocurrency, it can actually increase BTC price or take it down a little. This is why investors want to learn all that they can about altcoins, not just BTC.
Production Costs
Mining one BTC costs more money as time passes. This does impact BTC prices. Mining relies on very complex cryptographic math problems. When problems are solved, Bitcoins appear. To put things as simple as possible, BTC production is not like other goods. The algorithm influences everything, just like electricity costs.
Final Thoughts
If you want to invest in Bitcoin, you need to automatically consider all the factors mentioned above. Focus on why BTC prices change so you can understand when it is the right time to buy and when you might want to sell, preferably for a really good profit.