Factors that influence Bitcoin prices

There are many factors that can affect the price of Bitcoin, including those related to supply and demand, fundamentals, macro, and sentiment. Since cryptocurrency is a nascent industry, regulatory developments can also have a significant impact on price.

Supply and demand - In theory, the greater the demand for Bitcoin relative to supply, the higher the price, and vice versa. Some observers believe that Bitcoin halving events (reductions in new supply) are bullish for price.

Fundamentals - The health and growth of the Bitcoin network can be seen in the following metrics: number of addresses, number of nodes, developer activity, number of existing or developing decentralized applications (dapps), scalability, security, and the number of potential real-world use cases.

Macro factors - Macro factors are those that affect the broader real-world economy. Since cryptocurrencies do not exist in a vacuum, these factors can also affect prices. Central bank rate hikes are a good example.

Sentiment - refers to factors that influence people's willingness to buy or sell Bitcoin based primarily on sentiment. A particularly common example in cryptocurrency is news and social media hype.

1. Bitcoin Derivatives Trading

Derivatives are trading instruments that allow traders to participate in Bitcoin's price movements without actually owning the Bitcoin. Futures and options are two common derivatives, while perpetual futures are a special type of futures contract unique to the cryptocurrency market. Derivatives often involve margin (i.e. borrowed funds), so gains may be magnified, as well as losses.

2. Risks of Bitcoin Trading

Like any financial investment, Bitcoin trading is risky. If a trader's analysis proves to be wrong, or the market moves against their position, traders may face losses. Proper risk management using methods such as stop-loss is essential.

Conclusion: Bitcoin trading is a way to participate in the broader emerging cryptocurrency asset class. By learning different trading strategies and tools, and practicing prudent risk management, Bitcoin trading experience can be rewarding.