Bitcoin is a risky asset. Even as it approaches its thirteenth birthday, the digital currency still needs a strong track record of success. It’s also volatile—the bitcoin price today fluctuates wildly. But why does the price go up and down? Here are four reasons.
Lockdown withdrawals affect the bitcoin price today
Bitcoin was created as a new asset class and has been used in all ways that a traditional financial instrument is used. Bitcoin has been so successful at serving as an investment vehicle that it has become the world’s gold standard for digital currencies.
Bitcoin users can hold their bitcoins or exchange them for other cryptocurrencies or fiat currencies on various exchanges. You can also use your bitcoins to buy goods and services from merchants who accept them as payment (more about this later). All of that can influence the bitcoin price today and in the future.
Bitcoin is a risk-on asset
In other words, the bitcoin price today tends to move in the same direction as other assets—like stocks and gold. When stocks go up, so does Bitcoin. That is because investors may use their gains from selling stocks and investing in Bitcoin or vice versa.
In fact, according to a study published in the Journal of International Money and Finance, “Bitcoin is not only uncorrelated with other financial assets but also an inverse predictor of returns on those assets.” The researchers said this finding was “strikingly at odds with much of the common rhetoric surrounding digital currencies.” There is more to the bitcoin price today than meets the eye.
Withdrawals from miners
As you can imagine, miners sell bitcoin to pay for their electricity and other costs. They’re selling a lot of it. They’ve been doing so since the network’s inception and continue to do so. Large miner outflows can drive the bitcoin price today down, although the impact is often minimal.
It has created an interesting situation where there’s less circulating supply than before, creating a deflationary environment. Over time, that should push the BTC value higher if demand remains the same or increases.
New buyers influence the bitcoin price today
The thing that makes the price of bitcoin go up or down is demand. If more people are buying bitcoin than selling it, it raises the price of one BTC.
If you’re wondering why this is true, think about supply and demand for any good or service in a free market economy. The supply of whatever it is will remain constant (or increase) while demand fluctuates based on economic conditions and consumer preferences.
Say there’s only one apple tree in existence. Naturally, everyone will want an apple from this tree because it’ll be rare and desirable—and thus expensive! However, if other trees start sprouting up everywhere, then you won’t be able to charge as much for your apples. The apple price, much like the bitcoin price today, will be impacted by changes in supply and demand.
The bitcoin price rises and falls regularly
It can be hard to determine whether or not you should buy bitcoin for investment purposes. The truth is that there are many reasons why bitcoin prices fluctuate. That is why it’s important to research before purchasing any cryptocurrency or digital asset.
The bitcoin price today might be up because…
- A major exchange closed its doors or filed for bankruptcy
- An influential government official announced a new policy affecting cryptocurrencies and blockchain technology development
Conclusion
Bitcoin is a volatile asset that can swing wildly in either direction. Therefore, it’s important to be careful when investing in bitcoin or other cryptocurrencies and only invest what you can afford to lose.
The price of bitcoin may rise or fall over time, so look beyond the bitcoin price today. It all depends on what happens with the cryptocurrency market as a whole!
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