In today’s article, I will be looking at some of the factors that drive the price of bitcoin.
Throughout history, the price movement of bitcoin has constantly been fluctuating.
As of 7th to 13th of March 2020, its price dropped from $9,160.39 to $4,916.78, but again, fluctuated all-time high to over $13,000 in October the same year.
If you want to know the reasons behind this sudden sharp movement, then, read this article till the end.
I have arranged the discussion of this article in the following order;
Price of BTC Explained
One interesting fact worthy of note is that Bitcoin does not have an exact price.
The price of Bitcoin is determined by the price that a Taker is willing to buy Bitcoin from a Maker.
Furthermore, the price of BTC on exchanges represents the highest price at which 1 BTC has been sold at the time being given the current condition of the market.
Therefore, if the BTC price on Binance is $7000/BTC, it simply means that the last trade of BTC was concluded at the highest rate of $7000.
This price will be adjusted accordingly once a new trade has been conducted and concluded.
To find out more about the price of bitcoin, then, you should continue reading!
6 Major Determinants that Drive the Price of Bitcoin
- Demand and Supply
- Hype I Media Impact
- Leading Exchanges
- Economic Factor and Political Instability
- Government Regulation
1. Demand and Supply
The price of bitcoin is determined by the current trend of the market, whether it is going bullish or bearish.
Going by the theory of demand and supply;
- More demand and less supply of bitcoins (bullish) = Price goes up
- More supply and less demand for bitcoins (bearish) = Price goes down
In other words, if buyers outnumber sellers, by default, sellers will quickly find a way to increase their ask price.
Moreso, if you are conversant with Bitcoin halving; you would already know that Bitcoin is designed to be limited in supply.
The maximum supply of bitcoin that will ever exist is capped at 21 million.
In that case, Bitcoin’s price would likely increase in the future if the world’s population embraces it.
2. Hype I Media Impact
Bitcoin and crypto price are also affected by hype, be it personal or institutional hype.
Conversely, this does not affect the price of other traditional assets, since, there is a central body regulating their price.
We often find bitcoiners posting overexaggerated testimonials about Bitcoin online to draw public attention.
Interestingly, this psychologically wins the interest of a group of investors, which drives the price of Bitcoin up rapidly.
Likewise, Bitcoin seminars, great headlines, and positive media coverage drive Bitcoin adoption causing price spike or vice versa.
3. Leading Exchanges
The effect of market-leading exchanges on bitcoin price is really worthy of note.
The exchanges that have the highest trade volume [i.e. the highest number of crypto traded] are considered to have a more “official” price.
If Bitcoin’s price goes high on major exchanges e.g, Binance, Bitstamp, etc at the same time, it will certainly cause all other exchanges to have higher bitcoin prices too.
The reason for this trend is simply because most traders pay rapt attention to prices on major exchanges.
They expect that prices on leading exchanges will surely filter through and affect minor exchanges through arbitrage trading strategy. Then other traders would follow suit.
This leading exchange trend can also be witnessed across exchanges that make use of different base currencies.
4. Economic Factor and Political Instability
The devalue of a currency and economic instability in a country can cause citizens to redirect their interest into investing in an invaluable asset like Bitcoin.
When this happens, the price of bitcoin will definitely skyrocket, since more people will be in demand for bitcoin.
Worthy of mention: The uncertainty that followed suit when Donald Trump became the US president in 2016, caused the bitcoin price to go up for two whole months.
5. Government Regulations
The regulation of bitcoin in a country is a strong factor that can bring about a positive or negative movement in the price of bitcoin.
A warm acceptance of Bitcoin by the government as a legal tender will;
- Solidify the establishment of Bitcoin as an ideal currency that people can invest in.
- Affirm the government stand on Bitcoin and in turn boost people’s trust in it
This situation would increase the interest of the population to acquire bitcoin, thus, causing the price to go up.
Conversely, if the government regulation is encumbered with stiff rules that restrict the activities of users, interest in Bitcoin will drop and so will the price.
For instance, the price of bitcoin increased exponentially when the Japanese government officially recognized bitcoin as a legal tender.
Inversely, the price also dropped drastically around 2017, when China placed a ban on local cryptocurrency exchanges.
This is not to say that bitcoin can be regulated (since it is decentralized), rather the government decision can impact its adoption and price movement.
The outbreak of pandemics like the Corona Virus pandemic can cause a decline in the price of bitcoin.
No one would doubt the negative impact of pandemics on the financial market and country’s GDP.
While Bitcoin is acclaimed as a “safe haven” over financial meltdown, it also got its big punch as it saw a great decline in price during the pandemic crisis.
As of the early month of 2020, the price of bitcoin followed a decline as with shares and other market commodities as a result of the COVID-19 pandemic.
Although the decline in price lasted for a few months, it engraved the feeling of uncertainties and disillusionment on bitconiers.
This is all I have for today’s post!
In order to summarize this post, here are some of the important points to always keep in mind;
- Bitcoin is decentralized, therefore, it has no official price.
- Every bitconier has the power to determine the price of bitcoin
Now, having learned all these, I bet you would not go without giving me a feedback.
Here, you can tell me,
With the way things are presently going on, what do you think is the fate of bitcoin come 2021.
Are there other factors that you think I should include?
Type in your response in the comment box that you can find below.
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