The Wild World of Bitcoin Prices

Bitcoin, known for its erratic price movements, can go from a thrilling high to a disheartening low faster than you can say “blockchain.” Investors have seen prices fluctuate dramatically, with values dropping from $20,000 to a mere fraction in mere weeks. This never-ending rollercoaster raises one pressing question: What exactly governs the price of this virtual currency that exists solely online?

Price Discovery: The Chaotic Exchange

Every time someone trades Bitcoin on exchanges, the digital coin’s price dances in reaction. Every buy and sell creates ripples in this vast market, creating what we call price discovery. When buying through an exchange, a user essentially engages in a contractual agreement with the platform based on the most recent trade, effectively influencing the ongoing price.

“That price is discovered on open exchanges through individuals and institutions trading with one another.” – Adam White, GDAX General Manager

The Dark Side of FUD: Fear, Uncertainty, and Doubt

The crypto market is notorious for harboring extreme sentiments, often influenced by external news. The term FUD has become a common phrase, representing the anxiety that can swiftly drag prices down. An example is the recent media frenzy regarding potential bans from South Korea, which sparked a mass sell-off fueled by panic alone.

• Fake news? You guessed it — prices plummeted!
• Fear can make even the most steadfast investor hit that sell button faster than a cat on a hot tin roof!

Buy the Rumor, Sell the News

Meanwhile, the market also sees cyclical trends like “buying the rumor and selling the news.” Investors tend to buy ahead of anticipated positive developments — even if the news would warrant selling later on. A prime example of this was the excitement surrounding the CME and CBOE futures release last year.

• Prices soared as rumors circulated prior to the launch.
• However, once the futures officially launched, prices dipped – classic case of selling the news!

The Ever-Present Law of Supply and Demand

When you peel back the layers, the basic economic principle of supply and demand governs Bitcoin price trends, just like any other asset. Higher demand can spike up prices on specific exchanges, creating discrepancies across platforms.

“Bitcoin exchanges are managing an order book at any point in time, matching buyers and sellers,” – Christian Catalini, MIT Sloan.

The State of Bitcoin Today

With Bitcoin experiencing a downward trend, fueled by ongoing negative press and regulations in countries like China and South Korea, analysts indicate that this fluctuation was inevitable following the crazy highs of 2017.

• Neil Wilson from ETX Capital notes, “Explaining moves in Bitcoin is always tricky.”
• Once again, the crypto market illustrates how much the news can manipulate prices – reinforcing why trying to predict it is as elusive as catching smoke with your bare hands!