Bitcoin's price fluctuates due to several factors: its supply (scarcity), market demand, media coverage, news events, and regulatory changes. Some people believe that the cost of producing a bitcoin also impacts its price.
Unlike traditional currencies, Bitcoin is not issued by a central bank or backed by any government. Therefore, conventional monetary policy tools, inflation rates, and economic growth indicators that usually affect currency values do not apply to Bitcoin in the same way.
The Bitcoin block reward is halved approximately every four years in an event known as "halving." This means that the number of bitcoins awarded for successfully mining a block is reduced by half. The most recent halving occurred on April 19, 2024, bringing the block reward down to 3.125 bitcoins. Consequently, Bitcoin's future supply is decreasing, which contributes to its demand. This scenario exemplifies the basic economic principle of supply and demand.
Although Bitcoin remains the most recognized cryptocurrency, numerous other tokens are competing for investment. As of 2024, Bitcoin continues to dominate trading in cryptocurrency markets, but its market share has diminished over time. This decline can be attributed to the growing awareness of alternative coins. For instance, Ethereum has emerged as a strong competitor due to the rise of decentralized finance applications. Investors see the potential for Ethereum to transform modern financial infrastructure, leading to increased investment in ether (ETH), the cryptocurrency used to pay transaction fees on its network. Ethereum accounts for about 14% of the overall cryptocurrency market capitalization. New cryptocurrencies are continually being introduced, fueling the ongoing search for the next major competitor to Bitcoin. Other coins, such as Tether, BNB, and USD Coin, are also capturing market share away from Bitcoin. As a leading figure in the cryptocurrency ecosystem, Bitcoin has benefited from this attention, helping to maintain elevated prices.
"Social media posts from well-known individuals or celebrities can significantly influence investor sentiment towards Bitcoin, impacting its price".
To keep investors and the public informed, media coverage plays a dual role in Bitcoin's price. Any changes in the previously mentioned factors are rapidly reported to the public. Consequently, positive news tends to drive Bitcoin's price up, while negative news typically causes it to decline.