Recently, someone asked me, what exactly causes the rise and fall of cryptocurrencies? Honestly, Bitcoin's price volatility is quite significant. I remember a while ago, Bitcoin surged to over $70,000, and now it has hit a new high of over $120,000. The underlying logic behind this is actually quite interesting.

First, it’s important to understand that Bitcoin’s scarcity is fundamental. There are only 21 million in total, and this cap is fixed. A few years ago, about 900 new coins could be mined each day, but starting in 2024, that was halved to 450, making supply increasingly tight. This artificially created scarcity, to some extent, determines its value foundation.

But scarcity alone isn’t enough; demand is key. In early 2024, the U.S. approved Bitcoin ETFs, which changed the game. Institutional investors flooded in, liquidity increased significantly, and ordinary people found it easier to participate in trading. Many large funds started to treat Bitcoin as part of their asset allocation, directly boosting demand.

The reasons for cryptocurrency price fluctuations also include market sentiment. When everyone is optimistic, FOMO (Fear of Missing Out) drives prices higher; conversely, negative news can trigger panic selling and cause prices to plummet. Government attitudes are also crucial—if a country suddenly announces regulatory policies, it can trigger market volatility.

The macroeconomic environment is another important factor. During times of economic instability and high inflation, Bitcoin is often seen as a safe haven, leading to capital inflows. Additionally, the dynamics of mining—changes in hash rate, adjustments in mining difficulty—can influence short-term supply expectations.

Another often overlooked point is the actions of large holders. The buying and selling activities of big institutional investors or whales can significantly change market direction in the short term. Technical upgrades and security improvements also help boost investor confidence.

In essence, the rise and fall of cryptocurrencies are driven by the continuous interaction of supply and demand, market sentiment, policies, and macroeconomic factors. There’s no fixed rule—only probabilities and trends. Participants in Bitcoin trading need to constantly monitor these variables and make rational judgments. Of course, such investments carry considerable risks, with large price swings, so it’s essential to decide based on your own risk tolerance.