Since its creation in 2009, Bitcoin and cryptocurrency, in general, has been a topic of hot debate in the world of finance. While skeptics were quick to dismiss it, its evolution proved otherwise.
Throughout 2020 Bitcoin registered an increase of almost 270%, stabilizing towards the end of the year around $29K. In January of 2021 it reached an all-time high of over $41K. Nowadays, Bitcoin is lounging comfortably somewhere between 30-33k $. The question remains: what drives Bitcoin price and what can we expect going forward, in 2021?
There are many factors that impact cryptocurrencies and their volatile nature. Let’s have a look at some of the most significant ones.
The year 2020 has been a brutal year for the entire world, largely because of the Coronavirus pandemic. The cryptocurrency market was also hit hard at first. Still, trading prices kept increasing until reaching all-time highs towards the end of the year. Most Bitcoin investors describe the cryptocurrency as being a relatively “safe investment”.
Since Bitcoin is considered a store of value, much like gold, the general prediction is that it will continue to increase in value. The need for tech-enabled and remote financial services has also expanded because of various lockdown instances. This led most trust funds, banks, and universities have entered the race of rolling-out crypto services. Online-enabled services include withdrawals, deposits, and payment transfers.
While regular currency is directly impacted by inflation, most cryptocurrencies are not. Bitcoin is mostly seen as an inflation hedge precisely because of its limited supply which is not influenced by its price.
Bitcoin can also be a hedge for extreme situations such as unstable governments closing bank accounts, broken payment systems due to corruption, and even cyber-attack threats. As such, all other cryptocurrency market values are influenced by the rise and fall of Bitcoin.
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Bitcoin, like many other currencies, relies on miners to generate more of it by running specific mining software. Halving is the process that takes place every four years during which the reward that miners receive for unlocking a “block” is halved. For those new to Crypto and Blockchain technology, a block is a chunk of data. A bunch of blocks chained together make up a blockchain.
This limits the maximum number of bitcoins that will ever exist to 21 million. The process directly correlates with huge surges in price that usually happen between six and twelve months after the halving takes place.
While most of it is attributed simply to supply and demand, the majority of experts agree that halving is one of the more important factors to influence Bitcoin prices.
Another factor that affects cryptocurrencies in general, is the lack of standard pricing. The majority of Bitcoin investors choose centralized platforms precisely because they offer more safety regarding transactions and that they can withdraw FIAT from the exchange.In reality, theprice largely depends on supply and demand.
Therefore, a standardized price for Bitcoin cannot exist. All market operators come out with estimates that vary wildly depending on their sources. This means that you should do proper market research before choosing an exchange and/or trading platform and using their services.
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By the looks of it Bitcoin will continue its meteoric rise well into 2021, with some analysts predicting a jump over the 100K mark.
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