The truth behind Bitcoin price fluctuations

In the financial market in recent years, the price fluctuations of Bitcoin have attracted widespread attention and discussion. As an emerging digital currency, the sharp rise and fall of Bitcoin has not only attracted the attention of investors, but also triggered heated discussions among economists, financial analysts and the general public. So, what is the reason for the fluctuations in Bitcoin prices? What are the underlying factors behind this?

First of all, the price fluctuation of Bitcoin is closely related to the relationship between supply and demand. The relationship between supply and demand is the foundation of the market economy, and the price fluctuation of any commodity is closely related to the changes in its supply and demand. The total amount of Bitcoin is set at 21 million, and this limit makes Bitcoin scarce in supply. As more and more people become aware of the existence of Bitcoin, the demand continues to increase, and the price will naturally rise. However, when the growth rate of demand exceeds the rate of increase in supply, the price will rise, and vice versa. For example, in early 2021, the price of Bitcoin soared from $30,000 to $60,000 in just a few months. In the process, the influx of institutional investors significantly increased demand.

However, changes in demand are not only affected by investor sentiment, but also by market speculation. Many investors do not invest based on the actual value of Bitcoin, but try to profit from it with the mentality of "buy high, not buy low". This speculation has led to sharp fluctuations in Bitcoin prices. For example, in May 2021, due to the Chinese government's crackdown on cryptocurrencies, market sentiment reversed instantly, many investors sold, and Bitcoin prices plummeted by more than 50%. Such situations show that changes in market sentiment can quickly affect Bitcoin prices.

In addition to supply and demand and market speculation, the policy environment is also an important factor affecting the price of Bitcoin. Governments of different countries have different attitudes towards Bitcoin and other cryptocurrencies. Some countries actively support it, while others take restrictive measures. For example, the United States has a relatively loose regulatory policy on Bitcoin, which encourages innovation and attracts a large number of investors. In China, the government has taken strict regulatory measures to prohibit cryptocurrency trading and mining. This policy difference directly affects the market performance of Bitcoin and causes sharp price fluctuations.

Another factor that cannot be ignored is the development of technology and security issues. As an application of blockchain technology, the security and reliability of Bitcoin directly affect the confidence of investors. In 2010, some early Bitcoin exchanges suffered huge losses due to hacker attacks, causing a sharp drop in the price of Bitcoin. With the continuous advancement of technology, the security of blockchain has gradually improved, but security risks still exist. Any security incident may cause market panic, thereby affecting the price of Bitcoin. For example, in 2021, a well-known exchange was attacked by hackers, resulting in the theft of millions of dollars in Bitcoin. The market reacted strongly and the price fell instantly.

In addition, market liquidity is also an important factor affecting Bitcoin price fluctuations. Liquidity refers to the ease with which an asset can be bought and sold in the market. The higher the liquidity, the smaller the price fluctuation, and vice versa. The Bitcoin market is still relatively small compared to traditional financial markets, and the lack of liquidity makes the price vulnerable to large transactions. For example, at a certain moment, if a large transaction is executed, it may cause the Bitcoin price to fluctuate instantly, triggering a chain reaction.

Furthermore, the impact of media reports and social networks cannot be underestimated. Bitcoin price fluctuations are often accompanied by a large number of news reports and social media discussions. The support or opposition of a celebrity or well-known company for Bitcoin can quickly attract market attention and reaction. For example, Tesla CEO Elon Musk's tweets once caused a sharp fluctuation in Bitcoin prices in a short period of time. His tweets about Bitcoin can instantly attract the attention of tens of thousands of investors, thereby affecting price trends. This phenomenon is becoming more and more obvious in the era of social media, and the speed and breadth of information dissemination directly affect market sentiment.

In addition, changes in the global economic situation will also have an impact on Bitcoin. Bitcoin is regarded by many as a "safe haven asset". When economic uncertainty rises, investors may choose to transfer funds to Bitcoin to avoid risks. For example, in the early days of the epidemic, the global economy was hit hard, and many investors chose to buy Bitcoin to hedge against the risk of inflation, causing its price to rise sharply in a short period of time. On the contrary, when signs of economic recovery emerge, investors may return to traditional assets, resulting in a decline in Bitcoin demand and a subsequent drop in prices.

Furthermore, investors' psychological expectations also greatly affect the price fluctuations of Bitcoin. Psychological expectations are a kind of judgment on future market trends. Investors often form expectations of future Bitcoin prices based on historical market trends, news reports and other information. If the market generally believes that Bitcoin prices will continue to rise, investors may buy in advance, thereby pushing up prices. However, once market sentiment changes, investors' panic selling will cause prices to fall rapidly. This change in psychological expectations is often an important reason for sharp price fluctuations in the short term.

In this context, investing in Bitcoin requires caution. Although Bitcoin, as an emerging asset, has great investment potential, the severity of its price fluctuations also means that risks cannot be ignored. When participating in Bitcoin transactions, investors should fully understand the fundamentals, technical aspects and psychological aspects of the market and conduct comprehensive analysis and judgment. At the same time, a reasonable risk management strategy is also an important means to protect the interests of investors. By setting stop-loss points and diversifying investments, investors can effectively reduce losses caused by price fluctuations.

In general, there are many reasons for the surge and plunge of Bitcoin prices, including supply and demand, market speculation, policy environment, technical security, market liquidity, media influence, global economic situation and investors' psychological expectations. Understanding these factors not only helps investors make more rational decisions, but also provides an important perspective for us to think deeply about the future development of digital currency. Although the price fluctuations of Bitcoin are full of uncertainty, there are rich market information and economic logic behind them. I hope that every investor can find his or her own investment path in this market full of opportunities and challenges.

The four most famous international exchanges:

Binance INTL	OKX INTL	Gate.io INTL	Huobi INTL
China Line　APP DL	China Line　APP DL	China Line　APP DL	China Line　APP DL

Note: The above exchange logo is the official website registration link, and the text is the APP download link.

I believe that Bitcoin has become a digital currency that is familiar to the majority of investors. Investors who know about Bitcoin know that in the history of Bitcoin development, there have been many large-scale surges and plunges. Due to the development of the Internet and other communication systems, the current market entry methods, transaction methods and payment methods are undergoing a certain degree of change. Bitcoin is the innovative product of the combination of monetary economic theory and modern network information technology. Since its birth, Bitcoin has set off a digital currency craze in the global financial field. So what is the reason for the surge and plunge of Bitcoin? Let the editor of the currency circle talk about it below.
 What is the reason for the sharp rise and fall of Bitcoin?
As an emerging product, the emergence of Bitcoin is a revolution in the history of currency. The skyrocketing and plummeting of Bitcoin has also caused people to think about digital currency. The first is the reason why governments around the world forcibly ban or restrict Bitcoin.
Bitcoin facilitates illegal transactions and hinders the government's management of state functions. Because of this feature, Bitcoin is particularly convenient for illegal transactions. Currently, more than 50 well-known gambling websites accept Bitcoin to earn income. Illegal transactions driven by Bitcoin are not limited to gambling. The online black market "Silk Road" appeared in February 2011, where users can use Bitcoin to buy and sell illegal goods and services. Most of the illegal transactions on Silk Road involve drugs. For this reason, the government has strengthened its monitoring of Bitcoin, which has led to the sharp rise and fall of Bitcoin.
Bitcoin also hinders governments from implementing their monetary policies and collecting seigniorage. Bitcoin breaks the government's monopoly on the right to issue currency, which will reduce the seigniorage that governments receive from purchasing interest-bearing assets with interest-free notes. At present, the impact of replacing personal monetary assets with Bitcoin is negligible. However, the growth in demand for Bitcoin will weaken the government's ability to obtain revenue through seigniorage. Therefore, the impact of Bitcoin on government budgets is a reasonable reason to restrict or ban the use of Bitcoin. And government restrictions are an important factor in the surge and plunge of Bitcoin.
 Bitcoin's history of rapid rise and fall
June 2011
2011 was still a pioneering period for Bitcoin, when only the bravest traders dared to get involved in Bitcoin trading. This led to a drying up of Bitcoin liquidity and frequent price spikes and plunges.
In June 2011, Bitcoin rose from around $0.95 to $32, and then plummeted to $2 in November, a drop of 94%, setting a record for the largest drop, which still stands today.
Today, the double-digit Bitcoin quotes may not seem high, but at that time, the Bitcoin trading volume was only a small part of today’s. For most people at that time, Bitcoin was just an unknown experimental product, and no one could predict its future. So when it rose to $32, many traders thought it was the best time to take profits, so they left the market and led to a sharp drop in Bitcoin, while traders who had not yet left the market were hit hard.
November 2013
The largest and most typical crash in the history of Bitcoin occurred in November 2013, when Bitcoin fell 87%.
The trend of Bitcoin from November of that year to January of the following year was exactly the same as that in the past four months, which also seemed to suggest that the Bitcoin bull market could easily fall into frenzy near the end of the year, and the influx of a large number of new investors and media coverage could help Bitcoin rise to incredible highs.
At the end of 2013, the price of Bitcoin approached $1,200, a psychologically important level. After hitting this level, Bitcoin began a 411-day correction, which was partly prompted by the collapse of the Mt. Gox exchange, which wiped out $500 million in funds and fell to a low of $150 in January 2015.
November 2017
Five years after the price of Bitcoin rose to four figures, the price of Bitcoin rocketed to five figures and then continued to rise to $20,000. Looking back now, the two years before that were a great time to buy. If you bought it at the beginning of 2017 at only $750, you would have made a lot of money by the end of the year.
After the rocket was launched in November, Bitcoin fell sharply again, falling to $14,000 at the end of 2017, but the decline continued, falling below the $6,000 mark on February 6. However, the price of Bitcoin seems to have rebounded since then. If we refer to the market situation in 2013, we can expect that the trend of Bitcoin in 2018 will still be relatively optimistic.
The above content is the full answer from the editor of Coin Circle to the question of what causes the sharp rise and fall of Bitcoin. We know that the development of Bitcoin-like digital currencies is likely to be subject to government restrictions and cause sharp rises and falls. It is difficult for us to accurately predict where digital currencies will go in the future. We know that digital currencies are the integration of mobile technology, Internet technology, finance, cryptography and other fields, and digital currencies are likely to become a mainstream in the future. However, there are already many problems in the development of Bitcoin, and there is still a long way to go before Bitcoin can develop into a mainstream currency.