We can clearly outline the factors that influence the formation of the exchange rate of fiat currencies, but with cryptocurrencies everything is very ambiguous. However, let’s try to determine what the Bitcoin exchange rate depends on.
🔸 Demand and supply. The Bitcoin system is decentralized, so there is no regulator that would help smooth out currency fluctuations at a critical moment. It follows that Bitcoin is prone to significant volatility and the main factor in its pricing is the volume of supply and demand.
🔸 Legislative regulation. In countries that accept cryptocurrencies, there is a revival of the market, while in governments that have imposed various restrictions (up to a total ban on mining and transactions) – its decline.
🔸 Infrastructure. The emergence of new players in the market contributes to the development of infrastructure: BTC-exchanges, cryptocurrency exchangers, cryptocurrencies, etc. The amount of commissions charged for Bitcoin buying and selling for fiat money is also important.
🔸 Reputation. Positive or negative information about Bitcoin is an important factor in deciding whether to buy or sell cryptocurrency. In times of uncertainty or anticipation of “bad” news, the price may plummet and then rise sharply.
Factors affecting Bitcoin’s exchange rate also include distrust of fiat money, alternative investments and many other minor reasons.