Recently, someone asked me about the logic behind Bitcoin's price fluctuations, so I decided to organize my observations.

When it comes to the reasons for the rise and fall of cryptocurrencies, many people's first reaction is "speculation," but in reality, the underlying logic is much more complex than that. Bitcoin has risen from around $15,000 over a year ago to a historical high of $126,080. This increase is indeed astonishing. But if you understand supply and demand, you'll realize that these fluctuations don't just happen out of nowhere.

First, let's look at the supply side. There are only 21 million Bitcoins in total. Currently, over 20 million are in circulation, approaching the cap. More importantly, starting April 2024, Bitcoin mining rewards will be halved, reducing new daily supply from 900 to 450 coins. When supply is compressed, this is the fundamental logic behind cryptocurrency price movements—scarcity drives value.

Next, demand. In January 2024, 11 spot Bitcoin ETFs appeared in the market, marking a turning point. Institutional investors entered the market, and retail investors found it easier to participate. Liquidity surged, and with institutional backing boosting confidence, demand naturally increased. When demand rises and supply decreases, how can the price not go up?

However, the reasons for cryptocurrency price fluctuations are not limited to supply and demand alone. Policy attitudes play a significant role—if governments announce legalization or relax regulations, prices tend to rise; conversely, stricter regulation or bans can suppress prices. Market sentiment is also a key variable—investors buy in optimism and sell in pessimism.

The macroeconomic environment cannot be ignored either. During economic instability or financial market turbulence, Bitcoin is often seen as a safe-haven asset, which increases its demand. Additionally, technological developments, mining industry dynamics, large investors' buying and selling behaviors, and even security incidents like hacking attacks can cause short-term price volatility.

My feeling is that the reasons behind cryptocurrency price movements involve many dimensions, with no fixed pattern. Supply and demand, policies, sentiment, economics, technology, large investors' actions—these factors intertwine and jointly determine Bitcoin's trajectory. Therefore, participating in this market requires more than just watching one or two indicators; you need to stay rational and continuously monitor multiple aspects. Of course, investing in Bitcoin still carries significant risks, with high volatility. Before entering, make sure you fully understand the risks and make decisions based on your own risk tolerance.