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Why Does Bitcoin's Price Go Up and Down?

The cryptocurrency has been incredibly volatile.
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Bitcoin's price has gone from $32,983 on Jan. 22, 2021 to $35,811 on the morning of the same day one year later. In the year between, however, the price dipped below $30,000 in July and climbed above $69,000 as recently as Nov. 10.

On a five-year basis, things look a lot better for Bitcoin investors as shares have gone from just over $1,000 in 2017 to its current price that's hovering around $35,000. That's an incredible return when you consider that during the same five-year period Amazon  (AMZN) - Get Amazon.com, Inc. Report stock went from $835.77 to $2852.86 while Tesla  (TSLA) - Get Tesla Inc Report shares jumped from $50.59 to $943.90.

That means that for long-term investors, Bitcoin has been a better investment than Amazon or Tesla, and, honestly, it's not close. The difference, of course, is that Amazon and Tesla sell stuff and that gives investors some basis for their valuations (even if they sometimes don't seem rooted in reality).

Bitcoin has no product because it's the product. Its value tracks more like a collectible than a share in a company.

A five-year bitcoin chart.

Related: What to Consider Before Investing In Crypto: 2022 Investing Strategies

Why Does Bitcoin's Price Go Up or Down?

Bitcoin trades based on how people feel about cryptocurrency. It's not tied to a metric like sales. Instead, it's a combination of fear of missing out and how investors view the currency at any given moment.

Prices also tend to fall or rise depending on the actions of regulators. When authorities indicate that they could ban or strictly regulate Bitcoin, prices go down. But when they are warmer or less firm prices go up.  

"Rises are mainly down to positive perception in the media. Some news makes a lot of people think ​'bitcoin really is the future! I’m gonna get some and/​or buy more!,'" wrote Rhys Thomas at The Face.

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Drops happen for exactly the same reason. Bitcoin, like diamonds or gold, has a finite supply though the cryptocurrency has an actual cap while precious metals and gemstones exist in unknown quantities.

Roughly 19 million bitcoins of the hard total of 21 million have been mined, which means they can be bought and sold. 

"It took 12 years for the world's largest cryptocurrency by market cap to reach that goal after the first coins were mined on Jan. 9, 2009," wrote TheStreet's Tony Owusu in December. "However, it will take exponentially longer for the remaining supply to be mined due to bitcoin's halving schedule. The halving schedule is an inflationary control device where the reward for mining bitcoin is cut in half."

This process discourages mining because it raises the cost required to mine a bitcoin, which discourages people from doing it (especially when the price of the cryptocurrency has fallen).

Elon Musk Bitcoin Lead

So, How Do You Make a Bitcoin Price Prediction?

The price of Bitcoin does not track based on any predictable data. It moves up or down based based on how people feel about the cryptocurrency at any given time. When buyers outnumber sellers the price goes up.

And, of course, influencers and celebrities have the ability to move the price of various cryptocurrencies. Sometimes that's for no reason at all (or because the famous person wants the price to go up or down)  and sometimes for a semi-meaningful one like that a company will accept on form or crypto or another as payment.

Bitcoin, like any other cryptocurrency, collectible, and many rare items can be manipulated. In many ways, however, this works a bit like large-cap stocks versus penny stocks. Because penny stocks trade at lower volumes than large-cap stocks, they're harder to manipulate.

As the sort of king of crypto, bitcoin can't be manipulated as easily as smaller cryptocurrencies simply because it trades at much higher volumes.