Recently, I saw someone ask why Bitcoin is so volatile, rising from over $15,000 a year ago to its current level, with an astonishing increase. Actually, understanding the reasons for cryptocurrency price fluctuations isn't difficult; it mainly boils down to a few key factors.

First, you need to understand Bitcoin's inherent scarcity. There are only 21 million in total, and this is fixed. Over 20 million have already been mined, and in the past few years, the daily new supply was 900 coins, but starting from April 2024, the halving will reduce it to 450 coins, making supply increasingly tight. At the same time, on the demand side, since January 2024, 11 Bitcoin ETFs have been launched all at once, attracting a large influx of institutional investors, significantly improving liquidity. When supply is less than demand, the price naturally goes up.

Another important factor is market sentiment and the macro environment. Bitcoin is increasingly regarded by wealthy individuals and institutions as an asset allocation option, especially during times of global economic instability, where its hedging properties become prominent. Looking at policy levels, governments around the world are gradually changing their attitudes toward cryptocurrencies, which directly impacts investor confidence.

As for why the volatility is so intense, besides the supply and demand relationship mentioned above, it also depends on technological developments, mining dynamics, and large capital inflows and outflows. Changes in computing power, hacking incidents, shifts in market sentiment—all these can trigger significant short-term price swings. The reasons for cryptocurrency price fluctuations, simply put, are a combination of these factors; there’s no absolute rule.

I think the key is to understand that Bitcoin’s price volatility reflects the market’s changing perception of its value. From supply-side scarcity, to demand-side institutional participation, to emotional market expectations, the reasons behind crypto price movements are embedded in these multi-dimensional factors. So, if you want to participate in this market, the most important thing is to closely monitor these variables and not be scared by short-term fluctuations. Bitcoin investment indeed carries significant risks; prices can fluctuate greatly, so doing your homework and making rational decisions is the right approach.