INVESTING IN BITCOIN AND THE DRIVING FACTORS OF BITCOIN PRICES

INVESTING IN BITCOIN AND THE DRIVING FACTORS OF BITCOIN PRICES

Bitcoins have been used for investment purposes since day one of their launch. This is because the prices of Bitcoin have witnessed some major fluctuations and investor have viewed this as a money-making opportunity. Bitcoins have experienced a lot of ups and downs in their prices therefore it is safe to say that there are some factors playing in the background that help in determining whether the prices of Bitcoins will rise or not. The purpose of this article is to explore these factors and provide a comprehensive approach as to when these factors will play in your favor and what indicators of these factors you need to be aware of.

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THE DEMAND OF BITCOINS

The basic law of economics dictates that as demand goes prices also rise. In 2020, the prices of Bitcoins skyrocketed. Even though in the start of the year, the world was plunged into a lockdown and a recession was set in place. The prices of bitcoins also fell, but as unemployment and inflation increased, people turned to digital platforms in their search for money. As a result, many people landed on Bitcoins and as more organizations and individuals started investing in Bitcoin the prices of Bitcoins started soaring upwards.

PREVAILING COMPETITION

Another factor that influences the price of Bitcoins is the competition that they face. Even though Bitcoins were the first digital currency that was launched, they can still be counted as the most successful cryptocurrency. however, since speculations have been made about other cryptocurrencies being introduced in the future that might provide tough competition to Bitcoins, there is a high probability that the prices of Bitcoins will go down as alternate options will be available to people. Since bitcoins do not face any regulations and are controlled through decentralized financing, there are very few barriers to entry and it is very easy for new currencies to be introduced into the market. These currencies can be introduced at very low prices which will attract more people towards them and will take the attention away from Bitcoins thus resulting in their devaluation

COST OF PRODUCTION

Another very important factor which determines the price of Bitcoins is the cost of production that is associated with Bitcoins. Despite their digital nature, Bitcoins are not produced for free. Bitcoin mining requires people to acquire high-end technology that facilitates the mining process and would help in solving complex mathematical problems in order to track down Bitcoins. In addition to the technological costs incurred, there are also certain fees that need to be paid to Bitcoin miners and other people involved in the production process. There is a lot of competition in Bitcoin mining which is why it is becoming increasingly expensive to produce Bitcoins thus increasing their overall cost.

In conclusion, there are several factors that affect the prices of Bitcoins including the acceptance of Bitcoins in various sectors of business, the inclusion of Bitcoins on different exchanges and whether Bitcoins continue to remain a scarce source such as gold.

CONCLUSION

Bitcoins are highly volatile in nature therefore it is difficult to predict how much a certain factor will influence their prices and whether it is certain that an increase or decrease in one factor will have the anticipated impact on the prices of bitcoins. For this reason, bitcoins are not considered to be the most risk-free investment. In 2020, all financial sectors suffered and bitcoins followed the same trend in the beginning, but out of the blue the prices reached an all time high and broke all previous records. We can expect some unprecedented changes in the price of bitcoins. All theories regarding bitcoin prices and the factors that influence the trends that they will face are a result of assumptions and no hard-core evidence points towards these factors. It can be said that for most part, bitcoin prices are very unpredictable, however, the factors mentioned above can be looked into as a source of guidance for potential and current investors.

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