Bitcoin is up today and down tomorrow, so it’s prone to extreme volatility. Life as an investor can be a bumpy ride, but there are no gains without risk, so even if cryptocurrency prices move around, act to limit any damage. Steady price changes within a general range – 12% and 20% – create opportunities for profit, so it’s considered healthy for the market. Manage uncertainty by doing your research before investing, that is, analyze the supply and demand, and stay up to date with the latest news and technological developments by following reputable sources (industry experts, influencers, and media outlets). If the most recent Bitcoin prediction proves right, its value will increase by +5%.
Supply and demand are critical in the cryptocurrency market because it directly influences the price of Bitcoin and other digital assets: when the demand exceeds supply, the price tends to rise, and the other way around. It all boils down to the interaction between buyers and sellers. As BTC’s scarcity increases, more people want it, so its value will inevitably increase, becoming a singular asset class. When there’s less demand for Bitcoin, the price goes down, erasing previous gains. Supply and demand depend on various factors, including economic events (price declines or increases on stock/bond markets) and developments on a global scale (the COVID-19 pandemic and Russia’s invasion of Ukraine).
Bitcoin Has a Maximum Supply Of 21 Million Coins
Bitcoin is finite, so there will never be more than 21 million coins, a limit introduced by Satoshi Nakamoto to curb inflation and make the cryptocurrency more valuable. The supply limit can be changed – in theory, at least – but such an amendment is unlikely to occur, as there are incentives and governance models in place to maintain the hard cap of 21 million coins. The limit of tokens that can be created for Bitcoin is encoded into its source code, enforced by network nodes, and it’s expected the last coin will be created or mined in 2140, though it may be earlier.
Just as precious metals derive their value from their finite supply, BTC’s capped maximum supply acts as a hedge against inflation, which means it remains deflationary or, at a minimum, non-inflationary, preserving purchasing power over time. Satoshi Nakamoto explained that the decision to limit Bitcoin’s supply to 21 million was based on knowledge and experience and, therefore, likely to be correct. The cryptocurrency’s mysterious and unidentifiable inventor fancied picking something that would make prices much like those of similar currencies, but without knowing what the future would hold, he chose something in between.
Miners, who are vital in securing the network by discovering new blocks and joining them to the previous ones, see their primary source of revenue cut in half every four years – eventually, their subsidy will drop to zero. They should be the ones to raise the supply cap beyond 21 million coins. This revision won’t take place, nevertheless, because it would result in inflation and invalidate one of the main arguments for investing in Bitcoin, namely its scarcity, and if BTC’s price falls, miners will lose money. Even if several nodes run the latest version of the Bitcoin Core, some still rely on older versions and implementations. Convincing tens of thousands of nodes to change the hard cap is impossible.
Meanwhile, Bitcoin’s Demand Is Determined by Multiple Factors
In trading, supply indicates the number and activity of sellers, while demand refers to the number and activity of buyers – or, in plain English, how much people are willing to pay for Bitcoin. As highlighted earlier, if the demand for cryptocurrency exceeds the existing supply, prices rise, and the price chart will show an uptrend. More often than not, whales and institutional investors boost trading activity levels, their buy orders driving prices up, while their sell orders can cause prices to drop. Green or red candles on a price chart reveal supply and demand zones (an upward impulse wave – large green upswing candle, an impulse wave downward – red downswing candle).
The demand for BTC is determined by multiple factors, including interest in the cryptocurrency, the project’s utility, and competition. Although the digital asset faced significant downturns in 2022 and 2023, Bitcoin made a comeback in 2024 following the introduction of spot ETFs, allowing investors to gain exposure to price movements without directly owning the cryptocurrency. By streamlining the token creation process, Runes pushes the boundaries and expands the utility of the Bitcoin network, unlocking new possibilities in terms of asset tokenization and DeFi. Developed by Casey Rodarmor, Runes uses UTXOs, so each transaction output can be used as input for a new transaction.
Bitcoin was created to bring financial sovereignty to an end by removing power from central banks and governments, addressing the perceived issues of trust and stability. Ethereum wasn’t created as an alternative to BTC – it’s an attempt to build a world supercomputer that facilitates immutable, programmable contracts and decentralized apps. In spite of their differences, Bitcoin and Ethereum aren’t necessarily rivals, as they serve different purposes and complement one another. Even if countless tokens have emerged, all faster and cheaper, BTC will remain the dominant cryptocurrency, so don’t wait for a potential flippening event.
Final Considerations
Whether there’s an excess of sellers or buyers, trading cryptocurrency carries a few specific risks, such as false breakouts, news and market sentiment, and dependency on supply and demand zones. To get a profit with no chance of losing, sell Bitcoin when the demand is strong and buy when the supply is strong (and the price is low). Managing risk requires using stop-loss orders placed with an exchange – or trading platform – across all situations, so safeguard both short and long positions, guarantee safe entry points for breakout buys, and address potential losses in swing trading.
Until Bitcoin reaches the rest of the world, we can expect major price increases and distressing price declines, even supposing the digital asset will become less volatile. The cryptocurrency is already showing signs of maturity, and the inflow of capital is expected to have a smaller impact as it’ll be flowing into a more prominent capital base.
