14 Factors That Affect Bitcoin Price

Bitcoin was founded by Satoshi Nakamoto ( the real identity of Nakamoto is still a mystery) in 2009. Most of you have heard/read about Bitcoin in 2017 when the price of Bitcoin is soaring and increasing daily. Bitcoin is the first decentralized blockchain system that doesn’t require any third parties to confirm the transactions. Bitcoin network is fully decentralized and no central authority or government stops the network.

Bitcoin price it an all-time high of $19700 on 17 December. The price of Bitcoin on 1 January 2017 was $1,000 and Bitcoin has increased around 1970% in 2017 alone. If you thinking that you missed a golden opportunity of your life to become a millionaire don’t feel bad. In this post, we will discuss when will Bitcoin price sees a boom like 2017 and what factors affect Bitcoin price.

Factors that Affect Bitcoin Price

1 Demand and Supply

Demand and Supply

Satoshi Nakamoto (the creator of Bitcoin) set the maximum supply of Bitcoin to 21 Million. The supply of Bitcoin will slowly unlock the time that makes it harder for someone to take control of the whole circulating supply.

Fiat currencies (U.S Dollar, Euro, INR, Yuan) are controlled by central authorities (Central Bank, Government). When there is an economic crisis or in many circumstances, the Central banks can print more and more money. On the other hand, the Bitcoin supply is controlled by mathematically algorithms and is predefined to 21 Million.

The inflation rate of the Bitcoin supply will reduce automatically after every four years. The current inflation rate of the Bitcoin supply is 4.70% and will be reduced to 1.80% after May 2020.

Bitcoin is a peer-to-peer electronic (digital) currency that will be sent to anyone without any permission from third parties (Government, banks and other authorized parties). Due to Bitcoin’s anonymous nature, it is very hard to track transactions. Bitcoin is used in buying and selling of products/services on the dark web. People also use Bitcoin in cross border payments because of low transaction fees.

The demand for Bitcoin is continuously rising and the supply is increasing very slowly as compared to the demand. This will increase the bitcoin price and Bitcoin may hit new all-time high value after the next halving.

2 Regulations

Regulations

The Bitcoin market is very new and is not regulated in many countries yet. There are few countries like Australia, Brazil, Canada, Denmark, Germany, HongKong, and the list goes on. As per data provided by research, Bitcoin is legal in 148 countries around the world.

According to the above data, Bitcoin is still restricted in China and India. Both these countries have a combined population of 2.80 Billion that is 38 percent of the total population of the world. China is looking to legal Blockchain technology and Bitcoin in 2020, the Indian government is also made a team that will study about blockchain and bitcoin. If both these countries will legal Bitcoin then there may be a huge increase in the price is bitcoin is possible.

3 Bitcoin Halving

Bitcoin Halving

Bitcoin halving is an event that reduces the per block reward by 1/2. Bitcoin miners get a reward after successfully added a new block into the bitcoin blockchain. The reward is only given to the miner that confirmations the block transactions and finds the hash value of the block. The halving event occurs after every 210,000 blocks (Approx. 4 years).

In 2009 when Bitcoin was started, the reward per block is set to 50 BTC. That means any miner that adds a new block in the blockchain gets a reward of 50 BTC. The first block halving of Bitcoin happened in November 2012 and the block reward is reduced to 25 BTC from 50 BTC.

The second block halving of Bitcoin happened in July 2016 and the block reward is reduced to 12.5 BTC from 25 BTC. The third halving of Bitcoin is likely to happen in May 2020. The third block halving will happen at 630,000 block height and reduce the block reward to 6.25 BTC from 12.5 BTC.

  • Bitcoin price on first halving (28 November 2012): $11 (Approx)
  • Price After 1 Year of Halving: $1100
  • Bitcoin Price on Second halving (9 July 2016): $750
  • Bitcoin Price After 1 and half year: $19700

From the previous history of Bitcoin price, we can predicate that Bitcoin will see a boom after halving and the massive bull run of Bitcoin may be seen in 2021.

4 Bitcoin Hashrate

Bitcoin Hashrate
Source: Blockchain.info

Bitcoin hashrate is the total computing power of the bitcoin blockchain network. In easy words the more the hashrate of a network the more secure and inevitable it becomes for hackers. Bitcoin hashrate continues to rise since December 2018 as shown in the image.

Bitcoin hashrate determines the number of Tera hashes per second (trillions of hashes per second) the Bitcoin network is performing. Hashrate will not affect the Bitcoin price in short but have major impacts in the long run. As the hashrate of the Bitcoin network is increasing, that will bring more trust among the investors to bet on Bitcoin. The hashrate makes the Bitcoin blockchain secure from malicious attacks.

5 Emotions

Latest Crypto Fear & Greed Index

The above is the fear and greed index of Bitcoin. The meter range from 0 to 100. The values closer to 0 means there is extream fear in the market traders and the a value closer to 100 means the greed is at maximum. It’s better to buy when the meter index is below 30 and sell when the meter is above 75. This is just for educational purposes and not an accurate buying and selling indicator.

Trader’s emotions play an important in determining the price of the Bitcoin. As you all know Bitcoin is a peer-to-peer (P2P) electronic cash system, most of the market of Bitcoin is also Peer-to-Peer (P2P). The main reason for the volatility of Bitcoin price is these P2P markets. If there is positive news come in the market, traders will start buying and if negative news hits the market then there is quick selling that will pump and dump the price.

6 Technical Analysis

Technical Analysis includes the chart pattern and buying and selling pressure of the market. Technical Analysis is good to predicate the price movements in the short term. Long term price movements can be predicted with the weekly moving averages and volume indicators. Technical Analysis will mostly work on chart patterns and indicators. Technical analysis will work both in short time frames and long time frames but you need to master the indicators for that.

7 Fundamental Analysis

Fundamental Analysis is a method of finding the fair value of an asset by examing the upcoming events and macroeconomic factors. There are many events that may affect the price of an asset. If the asset is adopted or regulated somewhere, or some countries planning to buy the asset the value of the asset class may increase. After doing fundamental analysis one can find whether the asset is overvalued or undervalued.

8 Manipulation

Bitcoin and cryptocurrency markets are very small compared to the total world money. Bitcoin’s total marketcap is $132 Billion (at the time of writing) and the total marketcap of the whole cryptocurrency market is around $200 Billion that is very small as compared to Gold marketcap ($7.5 Trillion).

It becomes easier for big players to move the market in the desired direction. Bitcoin price is very volatile and the big player takes advantage of this. The crypto community called them Whales (the person/group has a huge amount of funds). Recently Bitcoin has seen a 40% increase in price in a single day. The price move from $7200 to $10300 in just a few hours. Bitcoin is now trading at $7200.

9 Mining Cost

Mining Cost is another big factor that affects Bitcoin’s price. Mining costs will vary depends on the location, electricity rates, and climate. Miners are the heart of the Bitcoin blockchain. Miner provides the network strength and maintains the trust between the nodes. Anyone can start Bitcoin mining, you just need to buy the proper hardware and connect it to the mining pools.

As new miners and hardware are added to the bitcoin network, the hashrate and mining difficulty of Bitcoin will increase. The mining cost will increase with the difficulty so the price needs to push higher to make mining profitable. As long as bitcoin mining is profitable the bitcoin becomes more and more secure and big. Miners will stop mining when bitcoin mining is not profitable, so the price needs to be higher than the mining cost.

10 Adoption

Bitcoin adoption is increasing in the past 10 years. There are many big websites and companies that start accepting Bitcoin as a payment mode. Many small and local shops also accept Bitcoin as a payment. The number of Bitcoin ATMs is increasing daily and more than 6000 Bitcoin ATMs are installed all over the world.

As the price of Bitcoin increased, it gains more and more popularity and interest. Almost all major media houses and news outlet now publishing about the future and use of Bitcoin and blockchain technology. Chinese President Xi Jinping commented that blockchain technology is the future and Chinese companies should start using it.

11 Derivative and Futures Market

The first cash-settled Bitcoin futures market was launched in December 2017. CME Group and CBOE are the first to provide Bitcoin futures contracts. Futures markets allow a buyer to buy and a seller to sell the assets to a predetermined future date and price.

The futures markets have a big impact on the price of an asset. When a lot of future traders open short positions(place bids that the price of the asset will fall on the expiry date), the market is expected to fall and vice versa. Some experienced traders always keep in mind the short and long positions of an asset before making any trade.

When the futures market launched for Bitcoin the price makes an all-time high and touched $19700. After a few weeks of the futures markets, the price of Bitcoin falls rapidly and makes a bottom of $3100 in December 2018. Bitcoin again sees great growth of more than 300% before the Bakkt futures market launched.

12 Marketplace and Trading Platforms

Every market needs good liquidity to attract new investors. The total buying and selling volume of an asset is called liquidity. The higher the liquidity of an asset the easier your orders get filled.

There are a lot of new trading platforms and marketplace comes in existence after the launch of Bitcoin. Some of the famous Bitcoin trading platforms are Binance, Bitfinex, Kraken, Bithumb, Bitstamp, Poloniex and Bitmex. Some of the famous Bitcoin P2P marketplaces are LocalBitcoins, Paxful, and Bisq.

13 Big Movements on The Chain

Bitcoin prices can be affected by the large transactions on the blockchain. When someone sends a big transaction (that contains more than 1000 Bitcoin), there is a doubt in the trader’s mind that the coins are sent for selling. Many traders keep track of big on-chain transactions and try to predict the next Bitcoin price movement.

The market will fall many times after the big transactions happened. Traders also keep track of the Tether stablecoin (USDT) transactions. Whenever the Tether foundation mint (print) new USDT coins, bitcoin price will see a slight upward movement.

14 Bitcoin Price Prediction

The Bitcoin hashrate continues to rise that will show the strength and trust of the bitcoin network. The market sentiments are turning positive as the correction period is over. Gathering all the factors, Bitcoin will see a price boom in late 2020 or early 2021.

The most bullish event Bitcoin halving is coming in May 2020. The demand will increase with time as more and more companies to start accepting Bitcoin payments. All major media outlets publish about Bitcoin and blockchain technology that will bring new investors to the market. Regulators are closely studying the bitcoin and blockchain technology and likely to make new rules and regulations in 2020.

Also Read: How to Earn Bitcoin?

Note: The post is just for educational purposes. Please do your own research before investing in any market. We are not responsible for any profit/loss.