Why is Bitcoin’s price all over the place lately?
Bitcoin investing is tricky. Anyone who follows financial news knows that Bitcoin’s value has been on a wild ride the past few months. With the price dropping from a brief all-time high near $19,000 to less than half that at $6,000, people are wondering how to forecast the price and determine whether or not to invest.
Bitcoin value is determined by several factors. Here are five of the most important ones:
Recent Hacking Fuels Fear
Bitcoin hacking is a major concern, and the media covers it frequently. In June 2018, a small South Korean Bitcoin exchange was hacked, which resulted in a massive price drop. In investments, the price is often determined by consumer confidence. Bitcoin is supposed to be secure and hacks chip away at its inherent value. But a small incidence of cyber-theft probably isn’t the only reason for dropping value.
Cryptocurrency Speculation Creates Volatility
While incidents of hacking erode Bitcoin’s benefits, the surge of people buying cryptocurrencies based on trends rather than financial performance can further degrade its value. Some analysts believe that few people think of Bitcoin as a viable means of alternative payment – they just see it as a tool for getting rich quickly. This type of speculation catches up to any investment.
There’s Been Recent Evidence Of Price Manipulation
According to a recent report by a leading financial academic, Bitcoin’s price increase last year was orchestrated through manipulation. The researcher alleges that Bitfinex, one of the largest exchanges of the cryptocurrency, used Tether – another virtual currency – to purchase Bitcoin and drive up demand. And while demand can be manipulated, Bitcoin’s supply cannot.
Demand For Bitcoin Cannot Be Artificially Influenced By Supply
Other currencies, such as paper dollars, can be minted to artificially influence value. Like gold, Bitcoin supply is based on how much of the currency exists or is mined or found. In a system devoid of manipulation, then, Bitcoin’s value should be more constant and related to the existing system of mining or arm’s length trading. But Bitcoin is as complex as it is innovative, and it is fueled by a large community.
The Cryptocurrency Community Influences Prices
There are several different cryptocurrencies, with some touting features that trump those of Bitcoin. But since Bitcoin is the most popular virtual currency and is backed by developers, miners, and others, a sense of trust is weaved through, even during times of volatility.
To keep tabs on the price, the safest bet is to stay engaged in the community.