On Sep 3, 2020, something strange happened to the world’s biggest and the most popular cryptocurrency Bitcoin, which was extremely dramatic and had never been witnessed before. The cryptocurrency plummeted to a massive and groundbreaking 7% decline which shook the world. A 7% decline resulted in longs on the worth of a whopping $100 million. The sudden drop of this level indicated its highly volatile nature. Even though the volatility had been predicted by various institutions and financial bodies, no one had anticipated nor had presaged such an immense blow
The incident now also questions the credibility of such cryptocurrencies as a potential investment opportunity for buyers.
The Bitcoin and It’s Functioning
Before we inquire and explain about bitcoin’s fluctuations, let us first discuss what is the bitcoin cryptocurrency and how it functions.
The Bitcoin was produced by a team of unknown individuals with the cover name of Satoshi Nakamoto in 2008. The real identity of the individual or the group of individuals who introduced bitcoin remains one of the biggest tech world mysteries. It was introduced to the world in 2009 which was followed by the global stock market crash. It is a decentralized curry and free from government control and supervision.
Bitcoin enables easy peer to peer transactions and involves no intermediaries. The transaction data are stored in a blockchain and therefore guarantee high-level security. Among 6 million cryptocurrency holders in the world, the majority are using bitcoin.
What Affects the Price of Bitcoin?
Following the major accident, the experts started reconsidering their findings and knowledge about bitcoin so that they could be prepared the next time such an incident occurs.
1. The Supply and Demand Mechanism
Where the laws of supply and demand apply to all resources, and digital currencies such as bitcoin are no exception. Bitcoins are created with a process called mining, the miners process the transactions in the form of blockchain and this results in the creation of one bitcoin. One major characteristic of the mining process is that it tends to slow down with a growing number of bitcoins. This drastically decreases the number of bitcoins being produced and thus with the lack of supply, the demand in the market increases and this massively affects the bi coin value.
2. Bitcoin’s Cost of Production
Bitcoin cryptocurrency has a process of production which might sound peculiar, for it depends principally on electricity and the amount of time consumed in making it. The miners are to solve complex cryptographic math problems to process and update the transactions and create a bitcoin. The process involves heavy electricity consumption and is done by multiple miners. A single unit of bitcoin will involve multiple miners to work on it, causing high electricity usage. This determines the value of a single unit created. An average unit of bitcoin takes an average of 10 mins to get verified. The more the time, the most it will impact its value.
3. Market Competition
Despite being the biggest and well-known cryptocurrency in the global market, bitcoin still faces competition from other minor players whose population is likely to grow in the future. Some of the other popular cryptocurrencies are the following,
- Ripple XRP
Another cryptocurrency with a high potential of overpassing bitcoin is the libra cryptocurrency from Facebook. The level of competition determines the price value of the bitcoin and even if it has no major precautions to make in regards to the competition, it might have to rethink in the future.
4. Regulations and Laws
Despite being a decentralized currency with no government control, bitcoin will eventually face regulations as countries will start recognizing it. They may impose tax es which might affect the price to either fall or rise. Incase if a country‘s government fails to recognize the currency to be used within its boundaries, the price will be impacted. Furthermore, excessive bitcoin traders and investors are expected to face regulations regarding money laundering and customers.
5. Media Marketing
Media marketing has indirectly affected the price of bitcoin. With the advantage of being the biggest name of the cryptocurrency, bitcoin has been marketed the most over the internet. You can find a plethora of blogs and articles highlighting the importance and the concept of bitcoin currency specifically for your help with dissertation based on bitcoin. . This has led to people getting interested in the cryptocurrency and thus has soared its price.
Even with an unpredictable nature, and critical skepticism by some experts, the bitcoin continues to rule the market and is a harbinger of an era where digital assets and especially cryptocurrencies will be mainstreamed and people will ditch their national currencies and opt towards a more secure, convenient, and decentralized source of money exchange.