What is Driving the Bitcoin Price?
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Updated November 14, All of this shows how volatile the currency is, prompting the question, what leads to such huge movements? These include media hype and uptake by peers, political uncertainty and risk such as the election of Donald Trump or the vote for Brexitmoves by governments and regulators, and the governance of Bitcoin itself. It is likely the last factor that has driven the latest drop in the price, as a proposed Bitcoin split or "fork" failed to gain support from developers towards the end of last week.
The split would have doubled the number of coins in circulation as previous splits have and increased transaction speed. This is called " animal spirits " and refers to investors making decisions based on the behaviour of other market participants and their own intuitions, rather than hard analysis.
Analysis of the price of Bitcoin shows that positive media coverage is one of the main factors driving the price. Positive media coverage of new technologies causes a well-known hype-cycle — a peak of hype is followed by a "trough of disillusionment".
This was most apparent in the early days of Bitcoin, when mainstream press started to report on the new currency and caused a number of short price spikes and collapses. As media coverage increases and other factors are brought in, it is harder to distil the what is driving bitcoin value 2016 of the media alone.
Something similar happens when high-profile companies go public, as investors "pile in" and the value rapidly increases from a low base. Think of a company like Twitter, which saw a huge sharemarket "pop" when it went public. Political risk around national currencies can also affect the price of Bitcoin as people use it to hedge against price movements in a particular currency, or they need to quickly move large amounts of value out of a country or currency.
The economic crisis in Greece in was followed by reports of increased buying of Bitcoin by Greek citizens wishing to protect their wealth. But nervousness about the national referendum for Britain to leave the European Union Brexit on June 23,did lead to an increase in the price of Bitcoin alongside a decrease what is driving bitcoin value 2016 the value what is driving bitcoin value 2016 the British pound.
The pound started plummeting around May 20, By July 25 it was more than 10 per cent below what is driving bitcoin value 2016 pre-Brexit value. The election of Donald Trump as US president was also followed by two months of steep rises in the price of Bitcoin. Many attributed this to uncertainty in the US economy. They must decide, for instance, how it will be treated by the tax systemor whether and what regulation applies to its use. The announcement that Bitcoin would be considered legal tender in Japan pushed the price of Bitcoin up by 2 per cent in what is driving bitcoin value 2016 24 hours, and increased the price globally by per cent for the next two months.
China's decision to shut down several Bitcoin exchanges and ban initial coin offerings a form of crowdfunding often paid for with cryptocurrencies sent the price of Bitcoin plummeting by 29 per cent in 24 hours.
Although Bitcoin is a decentralised currency, some decisions about how it will work or evolve need to be made from time to time. These also have an impact on the price. The software used to verify Bitcoin transactions is created by developers and is run by miners the global network of people who verify Bitcoin transactions.
To change the software used to mine and authenticate transactions, developers need more than 50 per cent of the global network of miners to agree with that change. When what is driving bitcoin value 2016 get that support they can create a "fork".
On August 1,Bitcoin underwent a " hard fork ". A new cryptocurrency — Bitcoin cash — was created and given to everyone who owned Bitcoin. Bitcoin cash software can process 30 transactions per second, four times more than Bitcoin. Not what is driving bitcoin value 2016 investors in Bitcoin are coders, however, or knew what the fork would entail. There was a period of uncertainty before the forkand a period of rapid price rises afterwards. Since then there has been another fork — to what is driving bitcoin value 2016 Bitcoin gold.
The attempt at a third fork was the one that failed to get support last week. Although we can point to what is driving bitcoin value 2016 four factors as affecting the price of Bitcoin over its short life, it is a volatile and experimental technology, and is still in development.
For instance, it is deflationary — because there is a limited supply both in the total number of Bitcoins that can ever be created as well as the rate they can be created, the purchasing power of Bitcoin will increase over time. This differs significantly from currencies like the Australian dollar. If you store national currencies under your bed they will, over time, become worthless. For other investors, the volatility of Bitcoin makes for a good trading environment e.
You can see this in the above comparison with gold. Bitcoin can also be a long-term investment due to it being unregulated in supply and having some huge benefits over some national currencies: Being a relatively new market, however, with no mathematical mechanism to predict how it will act in the future, it really it is a case of buyer beware. Originally published in The Conversation.
First posted November 14, If you have inside knowledge of a topic in the news, contact the ABC. ABC teams share the story behind the story and insights into the making of digital, TV and radio content. Read about our editorial guiding principles and the enforceable standard our journalists follow. Would you have coffee in what is driving bitcoin value 2016 cemetery or take your kids to play near a family member's final resting place?
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There are a number of factors driving Bitcoin's extreme volatility. Bitcoin one step closer to being regulated in Australia. What drives the price of Bitcoin?
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