Unlike investing in traditional currencies, Bitcoin is not issued by a central bank or backed by a government, so the monetary policy, inflation rate and economic growth indicators that usually affect the value of any fiat currency do not apply to Bitcoin’s pricing system .

The following are 4 main factors that affect the price of digital currency to help you understand the trend of digital currency price. For details, please refer to the relevant reports published by the US website “Investopedia” which focuses on investment affairs.

Supply, Demand and Scarcity
Like other currencies, bitcoin currency as a whole is affected by the process of supply and demand, which is a major economic principle, so if the demand for bitcoin decreases, its price will fall, and vice versa, if demand increases, bitcoin The value of the coin will also rise.

Furthermore, the price of Bitcoin is linked to the scarcity factor which drives up the price and this is one of the factors that led to the price of Bitcoin rising to its highest level. The maximum output of Bitcoin is limited to 21 million, which is relatively low compared to other digital currencies. At the same time, its demand has increased in recent years.

speculation
Speculation is one of the factors that greatly affects the price of Bitcoin and causes it to rise or fall dramatically.

Speculators are eager to make quick profits trading bitcoin, so they buy and sell bitcoin very quickly and frequently, causing short-term fluctuations in its price.

Generally speaking, rapid and strong fluctuations are one of the characteristics of digital currencies, and it is this characteristic that attracts the attention of traders, because it creates opportunities to make money through short-term trading, but this is bound to be accompanied by more high risk.

development of legalization
Some countries still do not recognize the legality of Bitcoin, and some countries prohibit the use and circulation of such currencies.

Cryptocurrency prices tend to react quickly to any decision on legalization or banning, for example, when Japan announced that Bitcoin was considered a legal instrument of exchange, its price rose sharply in just 24 hours. Previously, Japan accounted for only 1% of Bitcoin trading volume, but when it decided to legalize cryptocurrency trading, this proportion rose to 6%, and even reached 55% of the total global cryptocurrency trading volume within a few days.

At the same time, other countries, such as China, introduced very strict restrictions to prevent Bitcoin transactions, which at the time had a very negative impact on the price of the currency.

Political event
In this world, any political event that seems to have nothing to do with a cryptocurrency can significantly affect its price.

Digital currencies benefit from a shake in confidence in official currencies, for example, unrest in some countries has led people to use digital currencies as an alternative to traditional government-issued currencies because they fear that political and economic turmoil in these countries will cost them materially , and they have lost faith in these government-issued fiat currencies.

These cryptocurrencies are often seen as an alternative asset to traditional government-backed currencies, so when investors lose confidence in their fiat currencies due to economic or political developments, they can turn to bitcoin, driving up the price of such currencies .

Some experts believe that when things get worse, digital currencies can replace actual gold holdings as a safe haven for assets. Although the World Gold Council believes that the price volatility of such assets is too large to undertake this task, the analysis It is widely believed that this possibility will rise further with the possible turmoil in the global political situation.