Bitcoin is a risky asset. Although approaching its thirteenth birthday, the digital currency still needs a strong track record of success. It’s also volatile – the price of bitcoin fluctuates wildly today. Why does the price go up and down? Here are four reasons.
Lockdown removal affects bitcoin price today
Bitcoin was created as a new asset class and used in all the ways a traditional financial instrument is used. Bitcoin has been so successful as an investment vehicle that it has become the world’s gold standard for digital currencies.
Bitcoin users can store their bitcoins or exchange them for other cryptocurrencies or fiat currencies on various exchanges. You can also use your bitcoins to purchase goods and services from merchants that accept payment (more on that later). All of these can affect the price of bitcoin today and in the future.
Bitcoin is a risky asset
In other words, the price of bitcoin today tends to move in the same direction as other assets like stocks and gold. When stocks rise, so does Bitcoin. This is because investors can use their profits from selling stocks and investing in Bitcoin, or vice versa.
In fact, according to a published study International Journal of Money and Finance, “Bitcoin is not only uncorrelated with other financial assets, it is also an inverse predictor of those assets’ returns.” The findings are “surprisingly at odds with much of the common rhetoric around digital currencies,” the researchers said. There is more to the price of bitcoin today than meets the eye.
Withdrawing money from miners
As you can imagine, miners sell bitcoins to pay for electricity and other expenses. They sell a lot. They have been doing it since the beginning of the network and continue to do so. A large influx of miners can drive down the price of bitcoin today, although the impact is often minimal.
This created an interesting situation where the circulating supply was less than before, creating a deflationary environment. Over time, if demand stays the same or increases, this should push BTC’s value up.
New buyers are influencing the price of bitcoin today
What drives the price of Bitcoin up or down is demand. If more people buy bitcoins than sell them, it raises the price of one BTC.
If you’re wondering why this is true, think about supply and demand for any good or service in a free market economy. The supply of anything will remain constant (or increase), while the demand will change based on economic conditions and consumer preferences.
Let’s say there is only one apple tree in existence. Of course, everyone will want an apple from this tree because it will be rare and desirable, and thus expensive! But if other trees start sprouting everywhere, then you won’t be able to pay as much for your apples. The purchase price, like the price of bitcoin today, will be affected by changes in supply and demand.
The price of Bitcoin goes up and down regularly
Determining whether you should buy bitcoin for investment purposes can be difficult. The truth is that there are many reasons why bitcoin prices fluctuate. That’s why it’s important to do your research before buying any cryptocurrency or digital asset.
Bitcoin price may rise today because…
- A major stock exchange closed its doors or declared bankruptcy
- An influential government official has announced a new policy affecting cryptocurrencies and the development of blockchain technology
The result
Bitcoin is a volatile asset that swings wildly in either direction. Therefore, it is important to be careful when investing in bitcoin or other cryptocurrencies and only invest what you can afford to lose.
The price of bitcoin can go up or down over time, so look beyond today’s bitcoin price. It all depends on what happens in the cryptocurrency market as a whole!
None of the information on this website is investment or financial advice and does not reflect the views of CryptoMode or the author. CryptoMode is not responsible for any financial losses incurred by its authors or customers acting on the information provided on this website. Always do your research before making a financial commitment, especially with third-party reviews, pre-sales and other opportunities.