The Reasoning Behind Bitcoins Irregular Price fluctuations

The price of bitcoin is constantly changing, sometimes it’s $300 and other times it’s $1200. In this sense it is similar to a stock which is why people buy and sell it, because they believe that after they buy it the price will go up and they will profit. Since there is a finite amount of bitcoins in the world many of these investors buy the Bitcoins and hold on to them and hope other investors do the same because the more people that hold and don’t trade, the less Bitcoins there are available to the public thus raising the price. An article I found on a website called investopedia talks about the main reasons the value of Bitcoin changes so much. Investopedia is a website often referred to when looking for good things to invest in. The main factors that effect the value of Bitcoin is the media, other countries inflation rates, and the IRS.

Source: https://blog.blockchain.com

1. The information that the media chooses to publicize about bitcoin often frustrates investors, “News events that scare Bitcoin users include geopolitical events and statements by governments that Bitcoin is likely to be regulated.” People use Bitcoin because it is not regulated, so when they hear that governments plan on regulating it they sell their Bitcoins making more Bitcoins available while also driving the price down.
2. Another thing that influences the value of Bitcoin is the IRS and their claims stating they will start collecting taxes on it, “Tax treatment of Bitcoin also affects the volatility.” Recently the IRS claimed that Bitcoin is technically property and should be taxed as such. Investors had mixed feelings about this. Some investors thought it was positive that Bitcoin was recognized as a currency. While majority were upset because if the IRS began taxing it, than people would have to start recording the value of Bitcoin and how much they spent every time it’s used. Another thing investors are afraid of the IRS doing is regulating it.
3. Getting hacked is a legitimate fear of many people who invest in Bitcoin. It isn’t very common but recently an exchange company that handled around 70% of all Bitcoin transactions was hacked into and had $460 million dollars worth of Bitcoin stolen, “Bitcoin gateways looked to the massive failure at Mt Gox.” This changed many people’s minds about investing in Bitcoin, and a lot of investors sold their Bitcoins, leading to a decline in the value.
4. “Bitcoin and foreign direct investment in countries with high inflation.” Another reason the price can go up is because when a country has a high inflation rate many people want something more stable, that they won’t need 5000 of to buy a loaf of bread. Bitcoin is special because a country’s financial problems don’t affect the value. This makes more people want to buy it because it is reliable.
5. Another factor that influences Bitcoins value is, “Bitcoin presents a variety of opportunities that did not exist prior to its development.” Once people started seeing that you can profit from buying and selling Bitcoin they began to do it. When investors hear about new technology associated with Bitcoin coming out they are intrigued and often buy more Bitcoin because they expect the new technology to drive up the price, and as more and more Bitcoins are purchased the higher the price goes.

Overall, the greatest factor that influences the price of Bitcoin is the media and what they say about it. When they say negative things investors begin to sell their Bitcoins because they don’t want to be associated with Bitcoin if everyone thinks it's bad, but when the media talks positively about Bitcoin people all of a sudden start buying more. When I began mining for Bitcoins last year the price per Bitcoin was around $300 and stayed around there until summer, then it increased to about $1000 and now it is leveling out at around $650. The drastic prices changes are what intrigues investors because there is a high level of risk but if you’re successful you can profit a substantial amount of money.

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