Understanding the economic factors that affect Bitcoin price and how they are interrelated

Bitcoin, just like other commodities, is determined by supply and demand. However, its price movements tend to be more volatile. However, Bitcoin’s price movements have often been driven by rumors rather than facts. This may have a basis in the fact that since its birth Bitcoin has been heavily influenced by hype.Bitcoin is a form of digital currency, therefore it is seen as an economic commodity that is certainly influenced by external economic factors. Yes, it is true that it is not issued by central banks and backed by governments. It is also true that it is not guaranteed by gold reserves. However, economic factors have a strong bearing on it, and thus on its price.There are several economic factors that affect the rise and fall of Bitcoin’s price, such as supply, demand, availability, reserves, and investor sentiment. We are familiar with these economic factors because they are fundamental. They are the basis for the movement of commodities, whatever they are.Supply can be understood as the total amount of a commodity in a given time frame. We all know that the total number of Bitcoins is quite limited at 21 million and that doesn’t change over time, but supply refers to the number of new Bitcoins produced in a given time frame. The less the supply in a given time frame, the higher the price in that time frame.Demand is more influenced by the popularity of the currency itself. For example, if many people are still using Bitcoin as a means of payment, we can expect the demand to remain stable.Availability is interpreted as the availability of Bitcoin on the market at a certain time, for example, today. It should be understood that out of a total Bitcoin reserve of 21 million, not all of them have been “mined”. There are still many that have not been mined, which is why Bitcoin availability is constantly changing (increasing).The reserve is the amount of Bitcoin that has not been mined and there are currently approximately 1.5 million Bitcoins that have not been mined. When the reserves are depleted, the price is likely to increase but not always. It is also possible that investors think that the cryptocurrency is becoming less attractive, therefore changing investor sentiment in a negative direction.From the above explanations, it can be understood that these factors are interrelated with each other. They cannot stand alone and any change in one will affect the other. Bitcoin price is more volatile because it is not guaranteed by anything. It is only guaranteed by the full market mechanism. It is only guaranteed by people’s interest in using it.So do economic factors affect the price of Bitcoin? The answer is YES, but not in the “official currency” way. The influence of these factors goes to a certain extent.Basically, these are just some of the economic factors that directly affect the price of Bitcoin. Indeed, other factors such as rising interest rates, inflation, and so on also affect investor sentiment, thereby affecting the rise and fall of Bitcoin prices indirectly. Hopefully what has been explained in this short article is useful for you.



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