Bitcoin is the most popular cryptocurrency known to man. It has been the leading and most successful cryptocurrency since its creation by the elusive Satoshi Nakamoto, who has successfully remained a mystery, even with the success of his product.
A single Bitcoin unit is currently valued at over $13,000 despite the impact of COVID-19 on businesses and stock values, but this wasn’t always the case. Bitcoin was worth just a few dollars for close to four years after its initial release, but increased investments have seen the value of the coin hit five-figure values.
In this article, we identify factors that have played a massive role in the growth of the price of the coin:
• PATRONAGE: USE IN TRANSACTIONS
In finance and business, service and commodity values are primarily dependent on patronage and market popularity, i.e., demand and supply. When demand for commodities increases, it activates the business rule; the order of commodities is directly proportional to their value and inversely proportional to the store. Bitcoin partly owes its incredible rise in value to the increased use in business transactions amongst Bitcoin traders.
Not only that, corporate investors are also now playing a major role in the use of Bitcoin. Businesses like PayPal, Square etc have massively integrated Bitcoin (cryptocurrency) into their dealings. This has played a role in the rise of patronage enjoyed by the coin.
Over the past decade, Bitcoin has successfully been able to draw in a massive flow of investments from both public and private bodies —hedge fund companies, individuals of all social classes. These individuals and companies have, also, at a steady and sometimes scary rate invested massively in popular coin.
Bitcoin owes this to its fiat-free transaction menus. Businesses can allow their customers to pay their bills via a seamless, efficient and cheap Bitcoin transaction.
Its mainly electronic and digital-based dealings, which allows users’ anonymity and its decentralized method of operation, have also drawn loads of people and institutions to the coin. The confidence that the coin is not under the influence or regulation of any government or any financial authority, has contributed to the influx of cash poured into its system.
• GLOBAL APPEAL
Trading amongst nations without common currencies is often affected by currency differences, electronic transfers, the cost of conversion at the banks, and financial bureaus.
In the period of financial conflict and the growing desire to reduce economic costs, Bitcoin provides an alternative for a global currency that can be used in international transactions, regardless of the cost of money transfers or taxes imposed on such transactions.
With this, Bitcoin traders across the world can effectively trade payments from their convenience without restrictions or Value-Added Taxes (V.A.T). The effect of its global appeal is the incredible rise in value which Bitcoin has undergone in recent times.
• TECHNOLOGICAL ADVANCEMENT
Technology has been the backbone of several operations since the dawn of the twenty-first century. Bitcoins digital network-based system is one of such advancements.
In an analog world, Bitcoin would have been no match for government control of fiat currencies, as it would have required different levels of permissions from world governments for it to thrive.
These permissions would have been impossible to grant by these governments because they would want to maintain autonomy and retain control over every transaction done. Also, there would have been increased VATs to cover the production cost since it would have just been a glorified decentralized fiat currency.
However, the advancement in technology has made the need for government approval or permission unnecessary. With development recorded in Blockchain and DeFi, the government are left playing catch-up to the world of Bitcoin.
Bitcoin and other forms of cryptocurrency are similar to the traditional banking system. The significant difference being that the conventional banking system deals mainly with fiat currencies, while the cryptocurrency systems convert fiat currencies into Cryptocurrencies.
In the traditional banking system, money is deposited in the bank for safekeeping. In contrast, the bank trades with it to make profits, of which their customers get a trickle from. But in cryptocurrency, users have control over their investments and can choose what would be or should be done with their money.
In cryptocurrency such as Bitcoin, users are solely responsible for the increase or decrease in their investments. Bitcoin provides opportunities for users to mine portions of their currency in exchange for more.
There is no doubt that the above reasons have played a huge role in the growth of the price of Bitcoin, however, the rapid progress the coin has made in recent times still does not protect it from the volatility that the crypto market is prone to.
The reasons identified below are why the coin has undergone some horrendous devaluation in recent times:
• BUSINESS AND TRADE NEWS
The Bitcoin market is often affected by government press releases, mainly when they include news of the possibility of governments seeking to regulate Bitcoin transactions and other Cryptocurrency systems.
These regulations and rules have always impacted how the crypto market operates. Investors and traders would remain unsure whether to turn or twist as one government policy can result in loss of millions.
• DROP-IN INVESTMENTS
Bitcoin value is fundamentally dependent on the activities going on around the Bitcoin market, especially investments. Whenever the flow of investments comes to a temporary halt or a reduction in investment occurs, then the value of Bitcoin drops.
During this period, traders are often quick to sell off their units to avoid losses. Like the Foreign Exchange Market, the Bitcoin market is primarily influenced by the big money movers’ activities and actions.
• THE EMERGENCE OF NEW CRYPTOCURRENCY
The emergence of new cryptocurrencies in the crypto industry often poses a threat to existing cryptocurrencies.
These new crypto assets are oftentimes cheaper. Thus, investors seek to buy them before the demand and their value increases. During these periods, Bitcoin often faces devaluation and reduction in usage.
In conclusion, we have been able to extensively talk about the factors that lead to the rise and fall of Bitcoin. Next time when the coin surges like it is doing presently, you should do well to remember it could be one of the reasons identified here. And when the value of the coin drops too, note that this could be because of the reasons highlighted above.
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