Economic and financial publications, along with online media, are filled with discussions on the phenomenon of Bitcoin. Especially heated debates revolve around the frequent price fluctuations of the first cryptocurrency, the scale of which can be truly impressive. Let’s try to understand the reasons behind the sharp changes in Bitcoin’s price.
Experts identify several factors that influence cryptocurrency value. To predict Bitcoin’s price, the following criteria should be taken into account:
The number of users willing to use virtual coins to pay for goods and services. This parameter depends directly on the nature of cryptocurrency news—negative news provokes a price drop, while positive information helps increase the value of crypto coins. The perceived value of Bitcoin among the general public. It is worth noting that digital money is advantageous over traditional means of payment due to its limited issuance. The fewer coins in circulation, the higher their value. In contrast, unrestricted issuance of national currency leads to hyperinflation and devaluation. The constant difficulty increase in Bitcoin generation also plays into the hands of cryptocurrency holders. Profitability of cryptocurrency investments. Predicting its level in advance is practically impossible. Digital money prices change so rapidly that users wishing to purchase Bitcoin simply cannot calculate the potential benefits of doing so. As a result, they lack confidence that they will be able to use the coins in the future to pay for necessary goods and services. The passive stance of major market players. Such behavior is understandable, given that cryptocurrency is a relatively new technology and its future is uncertain. If a company invests a large amount in Bitcoin, it has no guarantee that it can quickly liquidate these assets if market panic ensues. However, each price drop is eventually followed by a new, even more impressive and grand surge in the value of virtual coins. Bitcoin developers’ reluctance to make changes to the security systеm. They explain their stance by citing numerous risks that could negatively impact network operation. These arguments are valid. However, persistent reluctance to address identified shortcomings works against cryptocurrency. This issue should be resolved in the near future, either by adopting a new protocol or increasing the standard block size. Using Bitcoin as a convenient investment tool in emerging markets. This option has recently become viable, as Bitcoin’s volatility against the U.S. dollar is significantly higher than against the currencies of third-world countries experiencing hyperinflation. Bitcoin not only helps protect savings but also allows them to grow during economic instability, whether on a global or local scale. Legislative restrictions, such as a ban on using virtual coins under threat of criminal or administrative liability. It should be noted that this risk is currently minimized, as most countries, including Russia, demonstrate a tolerant attitude towards cryptocurrency. Thus, Bitcoin volatility depends on a significant number of factors, including political, economic, and social aspects.
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