On Thursday, the largest cryptocurrency, Bitcoin, slumped under $19,000 once again. It remains under pressure, and investors are worried about widespread inflation. That is because it can force the global central banks to skyrocket interest rates.
What Affects the Bitcoin Price?
Based on the Coin Metrics, Bitcoin last traded at $18,978.60, which is 5.7 percent lower. The crypto was down around 58 percent in 2022 alone. It has fallen about 72 percent from its $68,990.90 all-time high in November.
So, interested Bitcoin investors got curious about the factors affecting the price.
Supply and Demand
Bitcoin halving affects the crypto’s price. For instance, if Bitcoin’s supply decreases, the demand increases. A high demand results in a high Bitcoin price.
Satoshi Nakamoto created Bitcoin with a 21 million hard cap, which means that when the cap is reached, miners will no longer receive new Bitcoins. The block rewards’ four-year halving could potentially impact the Bitcoin price at that point.
When it comes to constant changes in regulations, cryptocurrencies are no exemption. For example, China formally banned cryptocurrency transactions, and El Salvador officially accepts Bitcoin as legal tender.
Bitcoin price can decrease if there are no concerns or issues over the specific decision of the government against cryptos. Additionally, uncertainties in regulations create fears among Bitcoin investors, which can dip the crypto’s value further.
News and Competition
Bitcoin deals with competition from meme coins like DOGE or altcoins like ETH, which makes diversifying portfolios more appealing to investors.
If current cryptos have upgrades, it can drive the Bitcoin price down. This is in contrast to a scenario where this crypto was the sole digital currency.
The media coverage also influences the price. Investors often want to purchase cryptocurrency assets that come with a positive outlook. Then they ignore those assets with shady futures.
Bitcoin’s production costs include mining electric charges and infrastructural expenses. There is also the indirect cost, which is the mathematical algorithm’s difficulty level.
The different difficulty levels in the Bitcoin algorithm can either speed up or slow down the production pace. And this affects the Bitcoin supply, which soon impacts its price.
Is Bitcoin Price Volatile?
Bitcoin’s uncertain intrinsic and future value makes this crypto a highly volatile asset.
The crypto’s finite quantity reduces the new Bitcoin’s amount. The demand should match the inflation rate to keep a steady price.
In comparison to other industries, the Bitcoin market is smaller. Plus, the media coverage alone can already drive the value upwards or downwards. This makes the Bitcoin price highly volatile.
High volatility can possibly make the Bitcoin price crash to zero. For example, the value can crash if the Bitcoin price is not pegged to fiat currencies and other real-world assets.
Crypto Companies Face Liquidity Issues
The cryptocurrency price crash resulted in liquidity issues among companies and has exposed the industry’s highly leveraged nature.
This week, Three Arrows Capital, a crypto hedge fund, fell into liquidation. The company has been exposed to collapsed terra USD stablecoin. It also failed to meet margin calls from BlockFi.
For those who are less familiar with a margin call, it refers to a situation in which investors try to get more funds to prevent trading losses made with the borrowed amount.
Meanwhile, CoinFlex, a crypto exchange, decided to pause withdrawals due to extremity in market conditions. According to Mark Lamb, CEO of CoinFlex, Roger Ver, their long-time cryptocurrency investor, owes them around $47 million. However, this investor denies that statement.
CoinFlex issues a new coin to recover from that $47-million shortfall. The CEO also stated that they are having talks with different large funds that are interested in purchasing the token. The withdrawals will not also resume on Thursday according to plan.
Many experts reminded investors that pressure on cryptocurrency assets like Bitcoin remains in this environment. That is especially true since there are debates about whether the deleveraging of the crypto industry is over.
Bitcoin is closely associated with equity indexes. Plus, stocks are under pressure, which impacts the Bitcoin price.
The latest Bitcoin price crash made interested investors wonder whether or not they will enter the crypto world. However, investors should not fear too much.
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