Why And How Does Bitcoin Price Change?

Why And How Does Bitcoin Price Change?

Bitcoin has yet to be knocked down from the top spot in the cryptocurrency world by any altcoin. It is widely regarded as the very first blockchain-based cryptocurrency. From 2009 until today, Bitcoin, which was supposed to be “electronic money”, has not been widely accepted as a form of money.

When the idea of ​​Bitcoin was first floated, its creator/s Satoshi Nakamoto pitched it as “electronic money,” not a speculative asset. At that time, Bitcoin was neither considered an alternative to precious metals like gold nor to listed stocks. Cryptocurrency was seen as an alternative to the current dominant form of money – fiat money. Notably, while the value of currencies like the US dollar or Australian dollar typically rises or falls with very small margins, Bitcoin’s value can change drastically over a short period of time.

Today, let’s understand why and how the price of Bitcoin or any other cryptocurrency changes.

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Speculative asset, no money

The way Bitcoin currently works contrasts with how Nakamoto envisioned it. Instead of being widely accepted in the payment system, cryptocurrency has become a globally popular and controversial speculative asset. A listed stock is an example of a speculative asset. The change in the prices of these assets is the product of market sentiment, especially buying and selling trading activity.

Its proponents hail Bitcoin as a medium of exchange that can reduce the time and cost involved in payment transfers. The US dollar is considered a very important player in trade and commerce, thanks to the near universal acceptance of fiat currency.

Offer and demand

Bitcoin trades on specialized cryptocurrency exchanges, as do publicly traded stocks. Bitcoin’s value is a product of the number of people willing to buy and sell it. The more buyers compete and outbid each other, the higher the price can be. When the demand drops, the value automatically drops. By this measure, the operation of Bitcoin does not resemble the operation of fiat currencies, but that of speculative assets.

On the other hand, most other speculative assets like gold and stocks are generally less volatile than cryptocurrencies, including Bitcoin. This is why many also consider Bitcoin too risky and prone to very large losses. The reason for this is that many experts believe that Bitcoin lacks utility as a medium of exchange and also cannot be compared to listed stocks that represent a particular company engaged in commercial activity.

Ultra-volatility of Bitcoin

Listed stocks can sometimes be volatile, but cryptocurrencies can be too volatile. The price of Bitcoin rose sharply in 2020 and 2021, but a sharp decline followed in 2022. Speculative sentiment in the asset market has recently been weak due to rising interest rates, with stocks like Microsoft suffering losses . However, the loss in value of Bitcoin is relatively very large. Events such as a company declaring the acceptance of bitcoin in payments can lead to a limited increase in the value of the cryptocurrency. On the other hand, a negative comment from someone like Elon Musk can also trigger a large Bitcoin selloff.

Data provided by CoinMarketCap.com

At the end of the line

The answer to why the Bitcoin price is changing is that it is currently functioning as a speculative asset. How it changes depends on the mood of the market, with the forces of demand and supply deciding the price at any given time. Bitcoin has not yet been considered a stable medium of exchange by the wider financial world. Even the legalization in El Salvador declaring Bitcoin as legal tender has drawn criticism from various quarters, including the International Monetary Fund.

Risk Disclosure: Trading cryptocurrencies involves high risks, including the risk of losing some or all of the amount of your investment, and may not be suitable for all investors. Cryptocurrency prices are extremely volatile and can be affected by external factors such as financial, regulatory or political events. The laws that apply to crypto products (and how a particular crypto product is regulated) may change. Before deciding to trade financial instruments or cryptocurrencies, you should be fully informed of the risks and costs associated with trading in the financial markets, carefully consider your investment objectives, level of experience and appetite for the risk, and seek professional advice if necessary. Kalkine Media cannot represent and does not warrant that the information/data available here is accurate, reliable, current, complete, or suitable for your purposes. Kalkine Media will not accept any responsibility for any loss or damage resulting from your interactions or your reliance on the information shared on this website.