1- The reason for the rise of Bitcoin

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1- The reason for the rise of Bitcoin

As Bitcoin grows over the years, every cryptocurrency trader wants to know why Bitcoin is rising? Here are the reasons for the rise in the price of Bitcoin and more in this article

Bitcoin reached an all-time high of $68,521 on November 5, 2021. The latest new record for Bitcoin is an impressive feat considering that just a year ago, the coin was hovering around $15,000 per coin. The surge in the value of Bitcoin in recent weeks came after the much anticipated debut of the Bitcoin ETF on the New York Stock Exchange, and record-breaking October for the overall stock market

Despite the new record high, Bitcoin remains a very volatile investment. In fact, the last time Bitcoin saw a record high in mid-April, it suddenly lost more than half its value and dropped to around $30,000 by mid-July. This happened again on January 24 of this year, when the currency lost nearly half of its value.

Quick information about Bitcoin

reason for the rise of Bitcoin
reason for the rise of Bitcoin

Bitcoin is a digital currency developed in 2009 by Satoshi Nakamoto
Bitcoin is neither issued nor regulated by central banks and therefore not subject to government monetary policies
The price of Bitcoin is mainly influenced by its supply, market demand, availability, and competing cryptocurrencies
There is a limited number of bitcoins and it is expected that all of them will be mined in 2040
Buying bitcoin is different from buying stocks or bonds because bitcoin is not a company

?What determines the price of bitcoin
Unlike investing in traditional currencies, Bitcoin is not issued by a central bank or backed by the government. Therefore, monetary policy, inflation rates, and measures of economic growth that usually affect the value of a currency do not apply to Bitcoin. On the contrary, bitcoin prices are affected by the following factors

Bitcoin supply and market demand
The cost of producing bitcoin through the mining process
Bitcoin Mining Rewards for Verifying Transactions to the Blockchain
The number of competing cryptocurrencies
News Developments

Reasons for the high price of Bitcoin
supply (coin supply)
The presentation of any asset plays an important role in determining its price. A rare asset is likely to have high prices, while an abundantly available asset will have low prices. The supply of Bitcoin has been dwindling from the start. The cryptocurrency protocol allows only new bitcoins to be created at a fixed price, and this rate is designed to slow down over time.

Thus, the supply of Bitcoin slowed from 6.9% in 2016 to 4.4% in 2017 and 4% in 2018.2 The halving of Bitcoin, which occurs every four years, generally corresponds to a significant increase in its price because it means that the supply of cryptocurrency will slow

currency demand

While Bitcoin has not yet found a viable medium of exchange, it has caught the attention of retail investors. The position of Bitcoin demand changes based on economic and geopolitical considerations. For example, Chinese citizens may have used digital currency to circumvent capital controls in 2020. Bitcoin has also become popular in countries with high inflation and undervalued currencies, such as Venezuela. Finally, investor demand for cryptocurrency has also increased with increased media coverage

reason for the rise of Bitcoin
reason for the rise of Bitcoin

All of this means that the contraction in supply has been accompanied by an increase in demand, which serves as fuel for the price of Bitcoin. Alternating booms and busts have become a feature of the cryptocurrency ecosystem. For example, the bitcoin price rally in 2017 was followed by an extended winter

production cost

Just as with other commodities, the cost of production plays an important role in determining the price of Bitcoin. According to research, the price of bitcoin in the cryptocurrency markets is closely related to the cost of its production and it is called the process of bitcoin mining

For bitcoin, the cost of production is roughly the sum of the direct fixed costs of the infrastructure and electricity required to mine the digital currency and the indirect cost related to the difficulty level of that currency’s algorithm. Bitcoin mining consists of miners competing to solve a complex computational problem – the first miner to do so wins a reward for newly minted bitcoins

Reaching a solution to the problem requires power in the form of significant processing power. In monetary terms, this means that the miner will have to spend money on rack-mining machines equipped with expensive processors. Bitcoin mining also incurs expensive electricity bills that, according to some estimates, represent between 90 to 95 percent of the total costs

According to the estimates of some sites, the electricity consumption of the bitcoin mining process is equal to or greater than that of entire countries. The indirect cost of bitcoin mining is the difficulty level of its algorithm. The varying difficulty levels of bitcoin algorithms can speed up or slow down the rate of bitcoin production and affect its overall supply, and thus its price

Competing currencies

Although Bitcoin is the most valuable and popular currency, there are hundreds of other digital currencies vying with each other to attract the interest of investors. As of 2021, Bitcoin has dominated trading in the cryptocurrency market. But its dominance waned over time. In 2017, Bitcoin made up more than 80% of the total market capitalization of the cryptocurrency markets. By 2021, this share has fallen to less than 50%

The main reason for this was the increased awareness of alternative digital currencies and their capabilities. For example, Ethereum has emerged as a fierce competitor to Bitcoin due to the boom in decentralized digital value (DeFi). Investors who see the potential to reinvent the bars of modern financial infrastructure have invested in Ethereum. On October 13, 2021, Ethereum acquired approximately 18% of the total market capitalization of the cryptocurrency markets. Ripple XRP and ADA Cardano are also on the rise, while the growth in stablecoins has drawn investors’ attention towards Binance’s BNB

Although rival currencies have robbed Bitcoin of the market capitalization, the competition has also drawn investors into the crypto asset class. As a result, the demand and awareness of digital currencies has increased. As a leading currency, Bitcoin has benefited from interest, and its price has risen

organizational developments

Bitcoin was released in the aftermath of the 2009 financial crisis due to the relaxation of regulations in the derivatives market. The digital currency itself is still mostly unregulated and has earned a good reputation for its decentralized system that is not subject to restrictions and regulation. Bitcoin’s regulatory status has its benefits and drawbacks. On the other hand, the absence of regulation means that it can be used freely across borders and that it is not subject to the same controls imposed by states

reason for the rise of Bitcoin
reason for the rise of Bitcoin

But it also means that using and trading Bitcoin can lead to criminal consequences. The vast majority of institutional investors remain wary of putting their money into an asset class

Reasons for rising cryptocurrency prices

The prices of other digital currencies are also rising day by day. Many investors or traders are unable to understand why this happens. Why does the price of a digital currency go up

To understand this, we first need to know how digital currency differs from traditional currencies such as the US dollar. The biggest difference is that the dollar is backed by the government and is declared as legal tender. It derives its value from the fact that two parties to a transaction place their trust in that value. Most countries operate in a fiat currency system, in which central banks and monetary reserves control the money supply and, therefore, indirectly control inflation

Digital currencies are not regulated by governments; So they are decentralized currencies. Most countries have not yet accepted it as legal tender. Digital currencies will also generally have a fixed supply, so a reduction in their value through inflation is unlikely

Other than that, they both have similar characteristics. Both can be a medium of exchange for the purchase of products and services and each is a relative store of value

Public Ledger for Digital Currency (Blockchain)

Every digital currency transfer is automatically entered into a decentralized ledger called a blockchain that is not regulated or manipulated by any person or entity. All transactions are secured by encryption and are available for everyone to view from anywhere at any time

Number of cryptocurrency contracts

The number of nodes measures the number of active wallets present on the network. It is a good indicator of the value of a digital currency. To find out if a coin has a fair price or if it is overbought, one can look up the number of node and total market capitalization (market cap) of a cryptocurrency and then compare the two indicators with other cryptocurrencies. The number of nodes also shows how strong the crypto community is – more nodes means stronger communities

Cryptocurrency exchange

To learn about digital currencies, anyone can visit an online exchange, such as WazirX or Binance. All the details about any cryptocurrency – such as its market value, its performance over the past weeks and months, total coins in circulation, current and past value – are available there. These cryptocurrencies, such as Bitcoin, Ethereum or Dogecoin, can also be traded on these exchanges for a fee

Determining the price of digital currency

The most effective way to determine the price of a cryptocurrency is to demand it. Great demand from buyers will push the value of the digital currency higher. Conversely, if a digital currency has a high token supply with little demand, its value will decrease. Other factors that affect the price of a digital currency include the level of interest of the currency – that is, how useful the currency project is. Hard mining can mean that it is difficult to increase the supply of the coin and cause upward pressure on the price when demand is high

Adoption by the masses

If more people invest in a digital currency, its value could rise to the ceiling. However, these virtual currencies are far from being embraced by the masses. why? Because there are real-world problems associated with it. First, it cannot be exchanged for goods and services on a large scale such as paper currency. For these cryptocurrencies to gain mass adoption, their usefulness must be increased and the transaction must appear profitable to the buyer

price volatility

The cryptocurrency market is still new and many people are not familiar with this industry. New markets have qualities that make them inherently volatile. Next, there are some whale accounts that hold a large number of cryptocurrencies and tend to influence the markets to make a profit

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