The price of Bitcoin (BTC) is volatile. What are the causes to the large daily, monthly, and yearly price changes to BTC? Equivalent to other asset classes, the three primary causes to price changes in BTC are:
- law of supply and demand
- good news
- bad news
Law of supply and demand
The economic law of supply and demand is that:
- price will increase when an asset is bought
- price will decrease when an asset is sold.
The total amount of BTC will never be more than 21 million. At this time, 18.294 million BTCs have been mined, and continuously, at an interval of 10 minutes, 12.5 new BTC is mined. It is estimated that some 1.5 million BTC has been erased or lost, and thus, the supply of BTC is 16.8 million. These BTCs are owned by more than 14 million people. Because there is a finite supply of BTC, the law of supply and demand has a very large control on the price for BTC.
Good news
News, good and bad has a large effect on the price of BTC. Each day in social media, on the internet, radio, TV, etc. BTC is in the news. News that is thought to be good for BTC makes the price increase. Good news helps people make the decision to invest in BTC for the “fear of losing out”.
Examples for good news are:
- China, Japan, or India will permit the use of a cryptocurrency
- a list of new businesses and banks that will accept BTC
- celebrities and people in the financial world that tell that they invest in cryptocurrencies
- facts about people that have made high investment returns in BTC
Bad news
News that is thought to be bad for BTC makes the price decrease. Bad news keeps people away from investing in BTC because it gives them “fear, uncertainty, and doubt”.
Examples of bad news are:
- new government regulations for cryptocurrencies
- skeptical celebrities, government officials, and people in finance that attack BTC
- cryptocurrency exchanges or crypto wallets that close immediately without a notification and take peoples BTC with them
- scammers that steal BTC from innocent holders
