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Half of the fun of being a bitcoin trader is the volatility of the price. But what exactly creates those swings that Tarzan himself would covet?

With wild dips and incredible recoveries, bitcoin pricing can sometimes seem almost arbitrary to the uninformed trader. For novice and pro traders alike, having a clear understanding of the factors that influence bitcoin price is necessary if you plan on trading the coin safely.

Understanding how bitcoin works, getting a safe and secure wallet, and getting yourself a great trading platform, like trusted Bitvavo, designed to help you navigate bitcoin price, are all great ways to get you off on the right start. Paying attention to the latest market news can only get you so far, especially if you don’t have a good grip on what actually causes the price to fluctuate. As it’s often far more intricate than just keeping an eye on market price.

What You Would Expect from Bitcoin Price

These influencers are basically the fundamentals of trading, present in almost any commodity you can buy, sell, or use. While it may seem a bit freshman, these are concepts that affect valuation in ways that are absolutely necessary to understand, whether or not it’s bitcoin price your watching.

Supply and Demand

Good old’ supply and demand. If you missed Econ 101, allow us to give you a crash course in how investments work. Supply and demand are one of the biggest drivers or price, whether you’re talking about investments, goods, services...whatever. Supply and demand run on the principle that the less of something there is in existence, the more it can be sold for. Particularly if that item is sought after.

What to Watch: The halving, overall exposure and news.

Competition

Competition for bitcoin resides mostly in the markets for other cryptocurrencies. While there are admittedly few that are quite as popular as bitcoin, there are altcoins that have unique abilities and niche communities attached to them. Not to mention that new coins are created practically every day. All with different attributes that make them enticing to different users. Spreading the demand around and taking some of the valuations away from bitcoin.

What to Watch: Other altcoins and their associated news, trading platforms.

Cost of Production

Production costs factor in pricing fairly ubiquitously throughout any market. As far as bitcoin is concerned, production means mining, and mining means energy and computing power. The more expensive the software and hardware necessary to mine bitcoins becomes, the more expensive it is to produce. Same with the energy costs associated with these supercomputers. If the cost of producing bitcoin should rise too far, the price of bitcoin is sure to take a hit.

What to Watch: Cost of precious metals, electricity, and Regulation.

What’s Unique to Bitcoin Pricing

While these things may not be exclusive to bitcoin, they are definitely factors that are a bit unusual to other stocks and investments. These are the influences that keep many traders guessing, while they have others feeling fully dialled in.

Artificial Scarcity

Artificial scarcity is the idea of being able to tightly and predictably control the supply of something. Bitcoin has artificial scarcity because a finite amount of bitcoin do and will exist. This amount is 21 million in total and this reserve is released incrementally at specific rates. The rate at which these coins are released is consistent and reduces by having roughly every four years. Most crypto investors know this as “the halving”. On top of that, there’s an estimated amount of bitcoins that have been lost and stolen. Giving any trader a fairly accurate idea of how many bitcoins are in circulation at any one time.

What to Watch: The halving, recent heists and scams, whales.

Whales

Whales are the scant few bitcoin billionaires. These specific traders hold the lion's share of bitcoin in circulation and can shift it around anytime they need to adjust the supply and demand of the market place- thus affecting bitcoin price. While some liken this to insider trading, because bitcoin is decentralized, there are no regulations against it. These whales do seem to tinker with the market at semi-predictable times, so take a few months and pay extra close attention to how bitcoin price moves about in conjunction with these investors.

What to Watch: Trading platforms, bearish indicators, whales.

Forks

Forks happen when the developers and miners of any particular cryptocurrency clash. If either of these parties disagrees, and can’t find some manner of middle ground- the original coding and functionality split in two, or “forks”. One side will stick with the original format, while the other will branch off into a new form of crypto. Bitcoin Cash is an excellent example of an enduring hard fork.

What to Watch: Crypto news, trading platforms, and altcoin behavior.

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