The Dynamics of the Bitcoin Rate Throughout History
Description: In this article, we have recalled the most striking ups and downs of bitcoin and considered what the future holds for this dynamic cryptocurrency.
Ups and Downs of Bitcoin Rate
Bitcoin (BTC) first appeared in 2008, created by Satoshi Nakamoto, a person or group of people unknown to this day.
The initial cost of bitcoin was $0.0008, after which it rose to $0.8 in 2010 and $130 in October 2013. In December that same year, the price went over $1,000, only to drop to $600 in less than a month. It lingered around the same amount till mid-2014 when it gradually dropped until late 2015.
In September 2015, the value began to rise once again, reaching $2,000 in June 2017. That said, by December that same year the price neared the $20,000 mark. Then followed a similar pattern: a gradual decrease to about $4,000 in 2018 and a small spike up to $12,000 in 2019, with another slump down to $5,000.
Finally, in 2020 and 2021 we saw a major increase from literally $10,000$ to over $60,000 in early 2021. Since then, the price fell to $30,000 and shot back to about $45,000.
As you can see, the price was highly volatile throughout its history but has maintained a somewhat steady price in 2014 to 2017. The drastic increase in 2020 to 2021 was caused by bitcoin being announced as a payment method by Tesla, Paypal, Microsoft and Starbucks.
What Affects the Price of Bitcoin?
Price is a changing element and depends on the usage of BTC, the coin supply, its liquidity, the mining conditions and the activity of its competitors in the crypto world. Volatility is directly influenced by these factors.
Supply and Demand
Demand for bitcoin is likely to increase for several reasons: media coverage, high fiat currency regulation and political instability. Active media coverage gets everyone thinking about BTC, even the sceptics. This, in turn, drives people to buy and trade the coin. Political instability and fiat currency regulation stimulate people to switch away from government-owned currencies and turn to BTC. With the flaws of fiat currencies becoming more evident every day, people will prefer a more stable and decentralised currency alternative, such as bitcoin.
The supply of bitcoin influences its price in two ways. First of all, new bitcoins are created at a preset schedule. When miners go through blocks of transactions, new bitcoins are brought into the market and the rate at which new coins appear is meant to drop over time.
It may lead to a situation when the demand is higher than the decreasing supply, thus driving the price up. The declining miner rewards have halted bitcoin issuance, which may be viewed as artificial inflation for the cryptocurrency.
Additionally, the volume of bitcoins that the system allows to circulate may have an influence on the supply. This amount is limited to 21 million, and, once met, mining efforts will cease to create new bitcoins. Once 21 million bitcoins are in circulation, prices will be determined by whether it is considered practical, in-demand and legal.
Although bitcoin is a virtual currency, its production requires large amounts of electricity that incur its real cost. Mining bitcoins is a difficult process where miners aim to get a block of bitcoins faster than others. The more participants of the mining process there are, the more difficult it gets, which leads to bigger spending.
The large consumption of electricity makes bitcoin production almost unviable if there is no way to make it more energy-efficient. Nowadays, about 50% of bitcoins are mined in the Chinese Sichuan province. The reason is its hydropower technology that helps reduce spending on energy. Renewable energy sources might be the answer to Bitcoin’s high energy consumption problem, but this issue is not being dealt with very actively.
Mining one BTC can cost between $5,000 to $8,500, which, at the price of about $45,000 per bitcoin, still makes mining profitable. On the one hand, the decrease of production cost due to more energy-efficient mining processes should drive the price of bitcoin down. However, at the same time, as mining spending decrease the endeavour will become even more financially attractive. This can lead to an increase in the number of network participants and push the price up even more.
Availability of Bitcoin on Exchanges
Bitcoin is readily available on many exchanges, including Coinbase, Bitfinex and others, as it was the first cryptocurrency introduced. The availability of the coin on major exchange platforms guarantees its liquidity and the legitimacy of the asset. This has a positive influence on the price of the coin.
Competition From Altcoins
Although there are various altcoins, like Ethereum, Dogecoin and Ripple, available on the market, Bitcoin is still the most popular and reliable option. The large competition between currencies is a factor that may lower their cost, as there is always another option for buying, and a high proposition is known to drive the price down. However, bitcoin’s visibility is one of its advantages in front of competitors.
What Are Bitcoin Cycles?
The four cycles in BTC price are the exponential high, correction, accumulation and recovery continuation. First, we have emotional buying from investors, then a healthy retraction from the previously inflated price, afterwards – buying at discounted prices, and finally an uptrend in the price of BTC.
Price corrections and rallies happen every four years. Usually, new highs happen 1 to 1.5 years after each halving event for BTC. Before each halving, we see an exponential increase in price after which the price crashes. Halving is the reduction of the original block reward by 50%. A block reward is a gain from mining BTC.
How to Predict Changes in the Bitcoin Rate
It is very difficult to predict the price of bitcoin due to its high volatility. Some of the things that could help you notice patterns are analysing economic news and performing technical analysis.
You could analyse the price tendencies using the Bitcoin Rainbow Chart, a logarithmic type of graph of bitcoin price evolution with coloured lines. This chart was created by employing a logarithmic regression technique first proposed by a Bitcointalk user in 2014.
The lower parts of the coloured band of the chart represent oversold bitcoin with blue and green colours. At the top of the band, you see red and orange colours, which mean that the coin is overbought.
Blue and green colours are the indicators for buying bitcoin because the price may be lower due to higher demand. When the price reaches red or orange bands, it may mean there is a low buying demand now, so the price may be higher and it is time to sell. It is not always possible to predict changes in the rates but noticing some repetitive events represented on the chart may be helpful.
Significant Ups and Downs of the Bitcoin Rate
Bitcoin’s price skyrocketed to a record $20,000 at the end of 2017, which was followed by a steep correction down to about $7,000 in the next two months. The spike was caused mostly by speculative investment, with some effect brought by the introduction of Bitcoin futures at several major platforms such as the Chicago Mercantile Exchange. Later in 2018, the price dropped to around $3,000, unable to withstand the movements of the market.
In 2020, BTC went from $7,000 to $18,000. The reason was an influx of large-scale investors and general move into the mainstream, with companies like PayPal and Visa implementing the coin into their operations.
In 2021, the price went as high as $60,000, caused by the distribution of government stimulus checks in the US and further institutional investment from companies like Tesla and Mastercard.
Since then, bitcoin’s price fell down and picked up again, lingering at around $45,000 at the moment of writing. Experts predict new breakthroughs in the near future as El Salvador legally adopts the coin and the US is likely to enter an economic recession soon, which will drive investors towards bitcoin to balance out the economic risks.
Bitcoin is highly volatile, but there are price patterns that can be identified by a smart investor. Right now in 2021, we are in a bull run. The best strategy according to some is to wait for the dip and only then invest in BTC, if you feel it is right to do so according to your own individual goals. If more countries accept the crypto as legal tender, we may only see the price increase. The same thing could happen if more companies start implementing it, just like Microsoft, Tesla and Paypal have done.
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