Predicting bitcoin’s future value. What causes its ups and downs?
In recent years, bitcoin has become an all-time favorite asset of many traders due to its fast appreciation. 2017 is truly fruitful for BTC. Simple because since the beginning of this year it spiked by nearly 200%, outpaced the yellow metal and achieved its all-time high of $3000. What causes such an unprecedented rally? It is bitcoin’s exceptional characteristics. Its main distinction from fiat currencies is the fact that no government controls it. While there is no limit to a number of banknotes the central political entity can get out of money printing press, bitcoins are very limited in number. There are only 21 million of them in circulation and this number cannot be increased. Many believe that the limited quantity of bitcoins increases their value in the long run. So, don’t be surprised if Bitcoin rebounds to even higher peaks.
A major drawback of the bitcoin is its extreme volatility. Bitcoin is moving upwards with numerous corrections – multiple dips that can easily hit traders’ pockets. There are three major factors that may distort the BTC’s way to the upside:
- Government regulations. Although Bitcoin is a decentralized currency; it still can be influenced by government regulation. For example, in early February, Chinese authorities seeking to relieve downward pressure on the yuan and stop the depletion of the country’s exchange reserves, halted bitcoin’s withdrawals. Investors could only buy or sell bitcoins on Chines exchange but were not allowed to transfer them or download/remove them. The BTC was hurt significantly. The decision to resume withdrawals came in May and sent the BTC to an all-time high.
- The news headlines. Sometimes, the price of Bitcoin moves in par with the major world news and some other Bitcoin-related news (cyber-attacks, security breaches).
- Investors at small funds. Various speculators have a significant effect on the bitcoin’s fluctuations. A great share of bitcoin’s $6.4 billion market is owned by individual investors in such institutions like hedge funds.
The recent big drop was spotted on June 15, 2017. Bitcoin slumped to $2250 from $2570 in a single day for no fundamental reason. Then, the digital currency managed to recover to $2640 in just a few days. Such swing is not new for Bitcoin. It is already an established pattern: after the significant downfall, the BTC rebound to the even higher levels. Those who decide trading BTC should make a note of such extreme fluctuations in BTC/USD and remember about bitcoin’s characteristics we specified in this article.