Why has the value of Bitcoin fluctuated so much since 2009?

The value of Bitcoin has endured many fluctuations since its emergence and still doesn’t seem to be showing any signs of slowing. Here's why.

As a digital currency, bitcoin has great potential. The value has fluctuated from less than a cent per bitcoin to more than $1000. There are several reasons behind the rise of bitcoin price, adoption and usage. Bitcoin service providers such as Wirex saw increasing number of new users of the digital currency.

Since 2009, the price of bitcoin has continued to rise due to several factors, including socio-economic reasons. In 2016,  the digital currency remained at $600 for months before rising to $750 by the end of the year. Bitcoin price further increased to $1,150 in the first week of January 2017 and hit an all-time high in February – where the cost of a single bitcoin rose above the cost of an ounce of gold.

The rise of Bitcoin

One of the main reasons for the sudden rise of the cryptocurrency is the unexpected depreciation of the Chinese Yuan in 2016. Because of this depreciation, the use of digital currency increased among the Chinese people as they sought bitcoin as a storage of value. Consequently, in early 2017, the Shanghai Head Office of the People’s Bank of China (PBoC) reported that people investing in the digital currency should do so very cautiously due to the high volatility of the currency, before conducting investigations into three of China’s top Bitcoin exchanges; BTCC, Huobi, and OKCoin.

However, it has been observed by experts that there has been a remarkable rise in the bitcoin currency and is one which continues to head in the same direction as hopes for it to become mainstream could soon become reality. So, if you’re looking to buy bitcoin, then here are a few examples of how socio-economic factors can impact the Bitcoin market.

Increase in demand in Asian markets

In 2014, some economists correctly predicted the fall of the Chinese Yuan and had reported that this would result in a rise in value of the Bitcoin currency in the market. Their reports indicated that the deflation of the Yuan currency and its effect on the use of cryptocurrency would correlate; so in other words, where one decreases, the other increases. The report also indicated that people are bound to divert themselves to the digital currency in order to protect their wealth from a currency that was rapidly diminishing in value. The main advantage of the bitcoin is that users are able to carry out online financial transactions that carry very low transaction fees, especially when compared to the other online payment resources. As a result of these points, naturally, the demand is bound to increase in the Asian markets for the digital currency.

Decrease in supply of Bitcoin

The primary feature of Bitcoin is that they are generated using a process called ‘mining’, so that newly created bitcoins can be added into circulation. This process is very different to regulation of fiat currencies where Governments can print new bills to manage inflation.

Now, when new bitcoins are mined, the record of each successful transaction made is added to the blockchain – a public ledger where all Bitcoin transactions are stored or recorded. Bitcoin miners used to get rewards equivalent to a bounty of 50 bitcoins for every block that’s successfully mined. However, in 2012, this figure got halved to 25, and then halved again to 12.5 in 2016. This scheduled event happens every four years in order to ensure that there are no more than 21 million bitcoins in circulation. As such, because less bitcoins are created as each block is successfully mined, it means that the value will increase over time as less bitcoins are created.

Bitcoin is becoming a powerful currency

With the increased use and interest of digital currencies, the value of bitcoin against the world’s top currencies is expected to continue to increase over time. With the increased mining and abundance of bitcoins, it’s more likely than not that it will become more mainstream to enable users to benefit from a more versatile currency. Moreover, new technologies have been developed to make the use of bitcoins easier and reliable. For example, blockchain has released an Alpha version of the Thunder Network back in May 2016, which allows users to make their payments quickly using bitcoins at a cheaper and a larger scale. Not only that, but there is a wealth of organisations that are investing in fintech solutions as a method of making blockchain technology more readily available.

In short, the value of Bitcoin has endured many fluctuations since its emergence and still doesn’t seem to be showing any signs of slowing. However, in the past two years, the Bitcoin currency has seen a remarkable high in its price, which is dictated by the purchasing power of fiat currencies in countries where bitcoins can be used for financial transactions. Ultimately, this trend that can be seen over the past two years is expected to continue, but at a rate of which nobody knows.

Praseeda Nair

Praseeda Nair

Praseeda was Editor for GrowthBusiness.co.uk from 2016 to 2018.

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