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Every month seems to bring new news about the rise and fall of
Bitcoin price. This digital asset is a type of cryptocurrency that has a reputation for being incredibly volatile. Since the coin launched in 2009, the price has increased significantly, with a more than 10,000% return on investment over the past ten years. What exactly has caused these gains, and what are the factors behind the market crashes? Find out in this article.
What is Bitcoin?
Bitcoin is a decentralised cryptocurrency, using blockchain technology to provide peer-to-peer transactions for users all over the world. Because it’s decentralised, it’s not controlled by a person, government or organisation. Anyone can use Bitcoin, with no limits on how they can use it or what they can use it for.
The blockchain is key to how Bitcoin functions, with participants on the network able to validate transactions and ensure a high level of security and accuracy. The process of validating transactions creates new blocks to store information, and participants involved in this can receive Bitcoin as reward. This is known as mining, with newly minted Bitcoin awarded to successful miners.
Mining is the only way to produce Bitcoin, and there’s a limited supply available. However, it’s also possible to purchase the currency in exchange and trade it for fiat currencies such as dollars. This is how the majority of people invest in Bitcoin, with speculation that the limited supply will lead to
increased value.
Major Factors in Bitcoin Price Increase
Over the years, Bitcoin’s price has grown significantly since it was first launched. Many investors have made significant gains by holding the coin. Here are some of the main factors that led to Bitcoin’s price increase:
- Supply – The fixed supply of Bitcoin is one of the main reasons for its popularity as an investment. 21 million is the total supply available, and no more Bitcoin will ever be produced once the network reaches this number. When assets have a limited supply, they become more valuable, with scarcity leading to increased demand.
- Production cost – The mining process involved in producing Bitcoin requires a significant amount of computing power. Specialized mining hardware is used to validate transactions and mine coins. Every 210,000 blocks, the mining rewards are halved, meaning an increased amount of computing power and energy is required for the same reward. This means miners sell at higher prices to recoup costs.
- Media coverage – The media has also played a big role in Bitcoin’s price. As interest in cryptocurrency has grown, and increased number of media outlets publish stories and information about these assets. Whether the price is rising or falling, all publicity means more people are aware, leading to greater potential investment.
Major Factors in Bitcoin Crashes
The volatility of Bitcoin and other cryptocurrencies is much publicized, with major crashes generating headlines around the world. Here are some of the things that influence crashes:
- Lack of trust – Bitcoin may be more popular than ever but it’s still regarded with suspicion by many traditional investors. There are more risks involved, and as a result, some investors have less confidence in their investments. When there are issues with exchanges or security problems, this can result in large sell offs, crashing the price.
- Regulations – Governments may not control Bitcoin and cryptocurrencies, but they have often attempted to. By setting regulations governing how Bitcoin can be used, they can have a major influence on the market. News of a country banning Bitcoin has caused market downturns in the past, even if that news turned out to be fake.
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