Although blockchain technology has experienced a fair share of problems, the sector is growing. Bitcoin is one of the most widely used cryptocurrency. Its circulation is regulated. Currently, there are 13 billion bitcoins in circulation. By design, only 21 million bitcoin is supposed to be in circulation over 100 years. The adoption of cryptocurrencies by companies and platforms such as Ethereum has made the currency reliable and valuable. Some of the factors that affect bitcoin and cryptocurrency include;
Demand and supply
The demand and supply curves always influence the price of any commodity.When the demand of cryptocurrency is low the supply is high. When the demand for cryptocurrency is high, and the supply is low, the price of bitcoin and other cryptocurrencies goes high. This has been the case because the supply or circulation of bitcoins is regulated. Only 21 million bitcoins are supposed to be in circulation within 100 years. The popularity of the digital currencies is increasing, and more companies are adopting the use of the currency. Demand is thus growing while the supply is minimized.
Any time the government announces that it is looking for ways to regulate the digital currencies, people panic and the demand for the coins goes down, and so is the price. A perfect example of such a scenario is when the government seized funds during the Cyprus banking crisis
As people become more innovative, the benefits of technological advancement are being realized in the digital currency industry. More companies are starting to accept crowdfunding platforms which allow bitcoin as a mean of payment. PayPal is a good example of companies that are using technology to integrate bitcoin as one of their payment currency. This has created more awareness of cryptocurrency among many people across the globe. Blockstream is yet another platform that aims at encouraging innovations in the cryptocurrency industry thus add their value and popularity.
Acceptance by mainstream companies
As more companies especially the ones transacting online accept bitcoin as a form of currency and means of payment, the value of cryptocurrency increases. Some brick and motor companies have allowed their customers to pay using bitcoin thus increasing the demand for the currency and therefore the price. Reddit and WordPress are some of the companies that have accepted the use of bitcoin for transactions.
The media has the power to kill something or steer it forward. When the media reports on the benefits of using bitcoins, then the value increases. The opposite happens when the media reports on the dangers, risks and how the government is putting some regulation to control cryptocurrency. Every time there is a wave of negative or positive news about digital currencies, the demand changes and so does the price.
This happens because people tend to go by their “animal spirits” instead of doing critical analysis. Animal spirits apply when people decide to follow other participants in a particular sector are doing together with their instincts.
Increased dumping to fiat currencies
Although the use of bitcoin is gaining popularity, many companies have not accepted it as a means of payment or any form of transaction. For those businesses that are already trading with bitcoins, they are forced to sell the coin in cryptocurrency exchange for the fiat currencies so that they can transact. This is called dumping especially when it is done in large quantities. Dumping lowers the value of bitcoin significantly.
Stability of bitcoin network
Unlike traditional currencies that have value on their own and offer the users security, bitcoin is viewed as a bubble currency that can burst anytime. Most users only appreciate the value of bitcoins when they are traded. If people and most businesses stopped using bitcoin, then their value will fall.
The value of any currency is dependent on what people think of it. Cryptocurrency will continue to gain popularity as long as people find it secure and reliable. The media can affect cryptocurrency positively making the value of the currency to rise, but when the news is inherently negative, the value will do down. But once someone invests and benefits from it is is difficult to change their view on cryptocurrency.Demand and supply of cryptocurrency, as well as government involvement, are inevitable factors that will continue to affect the new digital currency.
By Dafa Zaky