With the recent growth in cryptocurrency investment, understanding what drives price formation has become more relevant. The current Bitcoin price is over $90,000 and rising rapidly. Experts predict that with the crypto-friendly administration coming in, it will continue its unprecedented climb. Several factors influence the daily price of cryptocurrency, including Bitcoin.
Supply and demand are the primary determiners, as are market stability and the influence of institutional investors. If there is high demand but low supply, the price decreases. Since the November election, Bitcoin's unprecedented gains have made it so enticing. The upswing is due to an incoming administration that is pro-crypto and aims to put decentralized currency at the forefront of the economic landscape.
Supply and Demand
At the time of writing, Bitcoin is hovering around $94,000, a $2,000 jump from the previous day. This can swing the price for positive gains or adverse losses in supply and demand. If the market gets flooded with BTC holdings, there will be a high supply. If the demand is not equally high, the price will drop.
On the other side of the crypto token, if an investor wants to purchase a significant amount and does, this creates a lower supply of BTC and drives the price up. With this said, many external factors determine the daily cost of Bitcoin. A significant consideration is that people buy and sell stocks according to personal preferences, which makes the market fluctuate the way it does.
Market Sentiment
In general terms, two kinds of investors invest in cryptocurrency, a new asset to the market. Some invest because they stand behind the technology and a decentralized currency, and those who appreciate the riskiness of investing in a new asset.
The former understands the power of the blockchain technology underlying Bitcoin, while the latter sees the potential for enormous returns on what can be considered a ground-floor investment. Though the two groups share different sentiments about investing in cryptocurrency, Bitcoin, in particular, each viewpoint determines daily Bitcoin prices.
Government Policies
Government policies influence the price of assets in multiple ways. Governments can regulate the price of assets through trading in international markets. They can also compress the value of an asset with regulations that increase the cost of doing business. However, these standard practices may not work with Bitcoin, as it is an extra-national currency and decentralized ledgers spread across many countries.
Given the varying sentiments and interests in Bitcoin and other cryptocurrencies, determining the outcome of governmental influence on Bitcoin may be challenging. While China banned the use of cryptocurrencies, Japan embraced the technology, which gives an ambiguous outlook on how governments can influence Bitcoin's price with any consistency.
Competition
Market stability is a critical component influencing any asset, including Bitcoin. Competing influences significantly impact Bitcoin's daily price. Although Bitcoin is the most well-known cryptocurrency, hundreds of other digital currencies are vying for investment dollars.
Other cryptocurrencies now exist, leaving many investors looking for the next big thing. However, Bitcoin is the torch bearer of the crypto world, giving it space as the safest investment because it has the longest history. It has reaped the benefits of the crypto boom, and for new investors, its name recognition may be what sets it apart from its competitors.
Why Keeping an Eye on Bitcoin Is Smart
Keeping a keen eye on Bitcoin seems like a wise investment. Crypto assets have been on an unprecedented upswing, showing no signs of slowing with the next presidential administration. Though hundreds of competitors exist, many of these startups have proven themselves to investors, and the risk is high. For investors who are leery about investing in cryptocurrency, Bitcoin is the most attractive option based on its name recognition and foundation in the crypto world.
