Bitcoin has grown in value by more than double since the beginning of this year, due in part to heightened interest from investors and recognition from governments. Bitcoin has a very volatile price due to its highly speculated market position. Bitcoin is commonly referred to as a resource like gold and a store of value, much like a car or a home.
While bitcoin has garnered interest and started to transition to a legitimate currency, it is still young in comparison to other currencies. In fact, Japan recognized bitcoin as a legal currency on April 1, 2017. In the days that followed, bitcoin rose by more than $1 billion worth of market capitalization. At the time this article was written, the market cap for bitcoin rested just under $40 billion.
Bitcoin saw a recent all time high of $2791 before dropping nearly $300 in minutes and over $800 in two days to a value of approximately $1800. But what causes such violent market fluctuations? Some investors use bitcoin to hedge against uncertainty in their home economies, some invest to take advantage of its volatility, and some invest for more personal reasons, such as anonymity.
Bitcoin has been influenced by market sentiment just the same as traditional stocks have been, but bitcoin also posted some of its largest gains amid mixed news. So, what drove that continued growth? It seems that the bitcoin community wanted to remain invested despite some trying news, such as the AntBleed exploit that we recently covered.
How is the price of bitcoin determined?
The price of bitcoin is determined by market sentiment and speculation. According to InvestingHaven, even this crash of almost $1000 in value still shows bitcoin on a bullish sentiment for the year. Bitcoin relies on the market to determine its value, much like stocks and precious metals. The same speculation by InvestingHaven expects that any bitcoin value over $1300 will show bitcoin retaining a bullish sentiment for this price correction.
Much like stocks and bonds are traded, so are cryptocurrencies. Bitcoin is the most valuable cryptocurrency at the moment, so a high valuation and interest in bitcoin can drive interest in other cryptocurrencies as well. Similarly, interest or uncertainty in other cryptocurrencies can drive fluctuations within the bitcoin market.
Price volatility: what does it mean for bitcoin?
Volatility refers to rapidly changing value. The value of bitcoin is volatile because it relies on market speculation to determine how much it is worth. Bitcoin investors rely on volatility in the market to make money, but the volatility that benefits investors makes bitcoin a risky choice for regular businesses. If a business were to be paid $100 of bitcoin for a service, and a market spike came, the shop may have made $150 or even $200. If the market lost support, however, the shop may have really made $50 or $60 for their service.
Price volatility also generates buying and selling opportunities which enable investors to create significant earnings within their respective cryptocurrency markets. Bitcoin recently had one of the wildest price swings among cryptocurrencies, dropping nearly 30 percent in a matter of two days.
What does bitcoin look like for the year?
Bitcoin stands above $2000 as of the time of this writing, leaving it at an incredible level of bullish sentiment when looking at the value over the course of this year. Market speculation drives the price of bitcoin according to the laws of supply and demand and bitcoin continues to be in massive demand despite recent events. The price crash of 2017 will be remembered as a large drop, but also one that bitcoin recovered from in only days instead of years.
Some of the concerns which bitcoin is working to overcome–or succeeded in overcoming–this year include the network scaling debate, AntBleed exploit, community separation between bitcoin scaling options, and mining pools threatening to attack weaker chains to force their will.
Highlights for bitcoin include growing in value by more than double on the year, finally coming to agreement about SegWit activation, and becoming recognized as a legitimate payment method in Japan.
The recent bitcoin price crash was significant, but it did nothing to push away the gains of bitcoin in the last year. Bitcoin has been on a significant price rally for the last two months, and, while a $300 price drop was significant, bitcoin has gained more than $1000 in value since January.
Bitcoin is currently valued as a resource because it can be spent like gold, but also used to invest or protect against economic uncertainty like gold and silver. Bitcoin needed to have a price correction in order to stabilize the market, and this recent price drop seems to have been just that.
Do you have any concerns with the steady rise in bitcoin’s price? Let us know in the comments below!
Dislaimer: This is not investing advice, this website is for educational purposes only.