Recently, I’ve been thinking about the logic behind the rise and fall of virtual currencies—especially how Bitcoin has actually performed over the past year, which is truly worth pondering.

Review the market, and it becomes clear. About a year and a bit ago, Bitcoin was still hovering around $15,000, and then last spring it surged straight to a new all-time high. Now, it has even broken through the $120,000 mark. The size of this rally is really astonishing, but there are actually clues to follow behind it.

First is change on the supply side. Bitcoin has a total of only 21 million coins, and this cap determines its scarcity. Now there are already more than 20 million coins in circulation, but the most critical part is that Bitcoin completed its halving in mid-last year. Before the halving, 900 coins were added every day; after the halving, it was cut directly to 450 coins. That greatly slowed the rate of new supply, which provides strong support for the price.

Demand has also undergone a qualitative shift. At the beginning of last year, 11 Bitcoin ETFs appeared in the market, and this had a huge impact on overall market liquidity and recognition. It became easier for ordinary people to enter and trade, and institutional investors also began to participate at scale—directly boosting demand. Wealthy individuals and large pools of capital are increasingly treating Bitcoin as an important asset allocation. As a representative of decentralized assets, its appeal really is rising.

But the reasons behind the rise and fall of virtual currencies are far more than just these factors. Policy stance is crucial. Once the government’s regulatory position changes, the market reaction will be very intense. The macroeconomic environment is also an important variable—when the economy is unstable, Bitcoin is often viewed as a safe-haven asset. On top of that, market sentiment, technological progress, mining dynamics, and other factors all interact with one another.

I’ve also noticed that recent changes in computing power are worth closely monitoring, because this could have a major impact on Bitcoin’s short- to medium-term trend. The buying and selling actions of large investors can also trigger short-term volatility, and these are all things that need to be tracked in real time.

To be honest, there’s no fixed pattern to the rise and fall of virtual currencies. Price fluctuations are influenced by multiple factors, and the relationships among these factors are quite complex. So when participating in Bitcoin trading, you must stay rational and keep a continuous watch on market developments. The risks of investing in Bitcoin are indeed not small—price volatility can be significant. Before entering the market, you must fully understand the risks and make a cautious decision based on your own risk tolerance.