Bitcoin price discovery isn’t a complete mystery, but it’s not easy either. Bitcoin is notorious for having wild price swings and the impact of news items on its price is difficult to forecast. However, there are still top factors that can affect the price of bitcoin. 

Supply and Demand

For countries that don’t have any fixed exchange rates, the amount of their circulated currency can be controlled at least partially by adjusting the discount rate, engaging in open-market operations, or changing the reserve requirements. These capabilities let central banks impact the currency rate. 

Meanwhile, the price of one bitcoin can be affected in two ways.  

First one: the bitcoin protocol lets new bitcoins to be created at a fixed rate. New bitcoins are introduced into the market every time miners process blocks of transactions, and the rate at which the new coins are birthed goes slower over time. This can pave the way for a situation where the demand for bitcoins rises faster than the speed of supply increase and this can push the prices higher. 

Second one: the number of bitcoins that the system lets to circulate impacts the supply. The number is currently limited at 21 million. That means when we reach that number, the mining activities will no longer create new bitcoins. By that time, the mining activities will probably be supported by transaction fees. 

After the current limit has been reached, the prices will rely on whether bitcoin can really be used in transactions, legal, and in demand. 

Competition 

Although bitcoin is the most popular cryptocurrency out there, there are still hundreds of other cryptocurrencies that investors may choose from. Among which are Ethereum and Litecoin, which are also traded on exchange. 

Tracking new initial coin offerings (ICOs) can provide you an idea of the number of companies that are eager to dive into the market in the coming years. Also, there are basically fewer barriers to entry in the market. 

In general, competitors and competition will keep the value of an asset in check. On the other hand, the speculative nature of cryptocurrencies makes it difficult to learn how the rules of competitive will affect the price.

Availability on Exchanges 

In the stock market, there are exchanges like the NASDAQ, the NYSE, and the FTSE. For cryptocurrency traders, there are Coinbase and GDAX. 

These exchanges let investors buy and sell bitcoins, Ethereum, and Litecoin for a fee. There are also different kinds of order types. Overall, they function similarly to other types of exchanges, enabling people to trade cryptocurrency/currency pairs. 

When exchanges become popular, they can more easily draw in additional participants. This lets them use their market clout to set up rules for how the other currencies are traded, which will make the available currencies more popular. 

Regulations and Legalities 

The quick rise in the popularity of bitcoin and cryptocurrencies in general surprised regulators. That’s why until December 2017, there were no solid regulations for the trading and use of cryptocurrencies. o In the aforementioned date, the Securities and Exchange Commission finally weigh in on digital currencies and considered them as securities. 

With regulatory approval, financial products with bitcoin as their underlying asset are made, enabling investors who cannot afford buying actual bitcoin to invest in them. it can also reduce price volatility, which for bitcoin is wild and nearly impossible to predict.