Bitcoin is the first successful decentralized cryptocurrency and payment system. Launched in 2009 by a mysterious computer expert known by two words as Satoshi Nakamoto, Bitcoin is represented by the symbol BTC when treated as a market asset. Bitcoin can be divided into smaller units known as “satoshis” (up to 8 decimal places) and used for payments.
Cryptocurrency markets began with the emergence of Bitcoin in 2009 and have been growing rapidly ever since. The market capitalization of cryptocurrencies is more dynamic than that of units in traditional financial markets. The market capitalization of cryptocurrencies is the current market price of a cryptocurrency multiplied by its total supply in circulation.
The fact that Bitcoin's total supply is limited to 21 million protects it from inflation and increases its value in the face of growing demand over time. The limited supply defines Bitcoin as like digital gold, and the mining process manages this supply. Mining solves complex mathematical problems to generate new Bitcoins and verify transactions. However, every four years, the halving event halves the mining rewards, which gradually reduces the supply and increases the value.
The supply and demand relationship, one of the fundamentals of orthodox economics, is similarly valid in cryptocurrency markets. The limited supply of Bitcoin has an upward effect on the price in cases of increased demand.
Halving leads to a decrease in supply and an increase in demand in cryptocurrency markets, often leading to a price increase. With reduced supply, Bitcoin constantly becomes more scarce. When investors recognize this scarcity, it can increase demand. Halving events also affect mining profitability, as halving rewards makes it harder for miners to cover their costs.
One of the biggest reasons for the dynamic nature of Bitcoin prices is the impact of the media on investors. Not only the media, but even celebrities and influencers can cause the market to fluctuate with a small announcement. Based on different examples that have occurred so far, news can have both positive and negative effects on the market.
News has undeniable power over cryptocurrency prices. Whether it's a confirmation or a restriction news or signal, this power is deeply felt. News of advances in blockchain technology or innovative partnerships can also boost certain cryptocurrencies. News of fraud or security vulnerabilities affects markets through panic selling. Numerous scientific studies also prove the influence of the media on the markets.
FOMO (Fear of Missing Out) and FUD (Fear, Uncertainty, Doubt) have become popular psychology concepts as the digital world has accelerated with the impact of social media. These two concepts which have a profound impact on investor behavior are even more influential on investors due to the inherent speed of crypto markets.
FOMO is an emotional state that causes investors to invest hastily and impulsively for fear of missing out on rapid price increases. It is common in high-volatility cryptocurrency markets during sudden and large price spikes. When investors see the value of a coin skyrocketing, they tend to invest quickly by fearing to miss the opportunity. This can be further triggered by social media, exaggerated news and the rhetoric of investors in the neighborhood.
FUD is an emotional state that causes investors to panic and sell due to negative news, uncertainties and doubts in the market. FUD usually occurs during bearish periods and causes investors to act in anxiety. Negative news, regulatory uncertainty, hacking, and manipulation can all contribute to the spread of FUD.
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Governments and regulatory bodies make a number of decisions to oversee and regulate cryptocurrency markets. These decisions range from determining the legal status of cryptocurrencies to how exchanges and other crypto service providers operate. Regulatory decisions are often used to prevent money laundering (AML) in order to enhance market security and prevent fraudulent activities.
The taxation of cryptocurrencies is one of the most important issues for regulators. Many countries treat gains from cryptos as capital gains and require taxation. Regulations aim to protect users by regulating the trading, use and storage of cryptocurrencies.
Regulation of cryptocurrencies varies widely on a global level. Some countries strictly regulate cryptocurrency markets, while others have more flexible regulations. For example, Japan and South Korea are among the countries that recognize and regulate cryptocurrencies, while China has banned cryptocurrency trading and restricted mining. The European Union is in the process of comprehensive regulation of cryptocurrencies. The United States, on the other hand, offers regulations that vary by state.
The depreciation of fiat currency during periods of high inflation can drive investors to assets with limited supply such as Bitcoin. Low interest rates reduce the return on traditional savings instruments, pushing investors towards alternative investments, which increases the demand for Bitcoin. On the other hand, high interest rates often lead to flight from risky assets and negatively affect Bitcoin demand.
Global economic crises increase investors' search for a safe haven, boosting demand for Bitcoin. For example, the emergence of Bitcoin after the 2008 financial crisis and the surge in demand for Bitcoin during the COVID-19 pandemic show that such crises increase interest in Bitcoin.
Events such as wars, political unrest and trade wars increase economic uncertainty, causing investors to turn to decentralized assets such as Bitcoin. These undesirable events make Bitcoin perceived as a safe haven as a store of value.
The Bitcoin network has a technological infrastructure that can be continuously developed and improved. In the recent past, innovations such as Segregated Witness (SegWit) and the Lightning Network have been implemented to increase transaction capacity and reduce transaction costs.
Likewise, updates such as Schnorr signatures and Taproot were designed to improve the network's privacy and smart contract capabilities. Today, Bitcoin's developers are permanently working on various improvements to increase the network's security, scalability and efficiency.
From time to time, cryptocurrency markets and blockchain technology face technical problems such as security vulnerabilities. Hacking incidents, smart contract bugs and cyberattacks can pose serious risks to investors. Software bugs in smart contracts have also been shown to cause losses in DeFi projects. Therefore, security measures are continuously improved by developers, which is crucial for the sustainability of blockchain technology.
In recent years, large institutional companies such as MicroStrategy, Tesla and Square have announced the addition of Bitcoin to their portfolios. With this reassuring investment news, other companies have also become interested in Bitcoin.
Bitcoin ETFs and other financial products make investing in Bitcoin more accessible. In 2021, the first Bitcoin futures ETF was approved in the US, increasing demand. In addition, instruments such as options and futures also increase market liquidity.
Because large investors hold very large amounts of Bitcoin, they can cause sudden fluctuations in market prices. Large trades can rapidly raise prices or, conversely, rapidly lower them, which affects market dynamics and, of course, the decisions of other investors.
Cryptocurrency exchanges are platforms where Bitcoin and other cryptocurrencies are traded. Exchanges with high trading volumes provide a more liquid market and make the price discovery process more efficient.
Liquidity providers and market makers increase liquidity by placing continuous buy and sell orders in the market. By narrowing spreads, these actors reduce trading costs and increase trading volume. Thus, when investors buy and sell large amounts of cryptocurrencies, it doesn't affect market prices much.
Large transactions can cause sudden fluctuations in cryptocurrency markets. Occasionally, a whale buying or selling large amounts of Bitcoin will cause short-term price movements in the market. This can increase volatility, affecting the behavior of other investors and creating uncertainty in the market.
Wars and political turmoil tend to drive demand for Bitcoin upwards. In Venezuela, for example, people turned to Bitcoin in 2019 when the local currency lost value due to hyperinflation. On the LocalBitcoins platform, weekly trading volume reached 40 million Bolivars (around 500 BTC).
In 2015, when banks shut down during the Greek debt crisis, Bitcoin use surged again, with the BTCGreece exchange seeing a 400% increase in users. And during the Ukraine-Russia war that began in February 2022, cryptocurrency donations to Ukraine exceeded $100 million. These examples show that Bitcoin has been embraced as a safe haven in times of economic uncertainty.
Global events and economic policies shape the dynamics of cryptocurrency markets. Pandemics, changes in central bank policies and international trade tensions are important factors affecting market movements.
Climate change and environmental factors are at the center of the debate on the sustainability and environmental impact of cryptocurrency mining. Increasingly high energy consumption and environmental pressures are forcing mining operations to switch to green energy.
Bitcoin's price is influenced by a wide range of interconnected factors including market supply and demand, investor sentiment, news, technological developments, macroeconomic trends and geopolitical events. For example, positive regulatory news can boost investor confidence and increase demand while geopolitical instability can increase demand for Bitcoin as a safe haven.
Market expectations also play an important role in determining the price of Bitcoin. Speculation about future price movements can alter current market behavior. For example, anticipated regulatory crackdowns can lead to sell-offs, while expectations of approval can drive prices higher. Analysts use tools such as technical and fundamental analysis to predict future prices, but Bitcoin's volatile nature makes it difficult to make precise predictions.
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Esentepe Mah. Kore Şehitleri Cad. İstanbloom No:16/1 - BB:33 Şişli / İSTANBUL
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