Bitcoin's price is dictated by supply and demand: it increases with higher demand and decreases with lower demand. Unlike fiat currencies, Bitcoin's supply remains unaffected by its demand.
Typically, when demand for commodities like fiat currency and gold surges, producers boost production to stabilize prices. However, Bitcoin's production stays constant due to its difficulty adjustment.
Fiat currencies can be generated infinitely and unpredictably, making their inflation rates tough to measure. Central banks usually target low inflation, but these rates can be altered at any time. Bitcoin's inflation rate, on the other hand, is predetermined, with new bitcoins created on a fixed schedule. This causes demand to surpass supply, pushing the price higher. Due to its limited supply and relatively small market capitalization, Bitcoin's price is highly sensitive to demand fluctuations, leading to increased volatility. Interestingly, Bitcoin's price is closely related to halvings.
