We shall start with a question?
Have you ever considered investing in something which you knew little about? Probably No, A Big NO
Because we never invest in anything about which we are uncertain. Investment is always made after carrying out a complete analysis on the return on investment.
Otherwise it is gamble.
We don’t want you to gamble with your hard earned money. Before investing in this virtual currency, we want you to be familiar with everything which affects its price.
We see the volatile up and down moves and rapid fluctuations in its value everyday. We just helplessly watch out for anything it has to offer in the next moment.
It is miserable to trade a Bitcoin without having knowledge about the factors which influence it.
Below are the four factors that impact its price.
Psychological factors
This is the number one reason for price change. Majority of the traders make a trade based on their intuition or they copy other participants.
They don’t follow any logic and reason before making an investment. Majority of the traders follow the crowd and follow the footsteps of others. They are not into habit of doing any analysis before executing a trade.
So, Bitcoin-value is an “unguided missile” which follows in the direction of public intuition. The most significant influencer of public opinion is the Media. We have observed a clear change in value after it has made the headlines in the TV channels.
Political Risks
The second most powerful factor is when the national currencies are vulnerable to lose their value because of the political risks surrounding in their respective territories.
The reason behind this is that investors withdraw their money from the local investments to avoid the impending loss. We have witnessed such example in 2015 when the Greek citizens bought huge amount of Bitcoins because of the economic crisis spread in the country. This made the currency stable for the whole year at the value of $300 to $400.
Regulatory Authorities
Regulatory authorities of different currencies can put a strong influence in the value of cryptocurrency. We will quote the two instances from the recent past to emphasize our point below.
In the first instance, When the Japanese government announced that Bitcoin will be considered legal tender, its value increased by 2% in the next 24 hours and in the next two months its value rose by 160% globally.
In the second such instance, when china recently announced the close of several Bitcoin exchanges and initial Bitcoin offerings, its value decreased by 24% in just 24 hours.
So it is recommended to keep a watch on what the regulatory bodies are going to announce so that you could execute a profitable trade in short time.
Bitcoin Software
There is a Bitcoin-software which is run by the miners to verify the transactions. Developers keep making changes in this software from time to time. To make a change in the software, developers require the consent of more than 50% of the miners to agree with the change. Developers create a “Fork” after getting the consent which can benefit the traders
The fact that how Bitcoin is governed by miners and the developers also affects the price of this currency.