What Determines the Price of Bitcoin?

Bitcoin has attracted much interest with its growing value since its inception in 2009. However, it hasn’t always been growing in value, experiencing significant ups and downs in the market. Still, despite its volatility, the crypto asset has surpassed the value of other traditional assets. 

Bitcoin has experienced significant price increases five times since its launch in 2009. So far, Bitcoin has reached an all-time high of $64,000 and increased its number of enthusiasts. On the way,  this crypto asset has had a very volatile curve and is often influenced by things such as political and economic conditions occurring in the world. According to historical data, Bitcoin has increased every year by as much as 200%. In August 2021, this asset dominated the crypto market and had a market cap figure of approximately 710,000,000,000 US dollars.

Major events such as the Mount Gox case, where a hacking incident resulted in a drop in the price of Bitcoin in 2014 or the stock market crash, explain how important events in the short term determine the price of Bitcoin. But in the long term, you can predict the price by using technical analysis, fundamentals, and looking at market sentiment. Here’s a complete guide on what determines the price of Bitcoin in the market. Check out more!

How to Analyze Bitcoin Price History

Before we jump straight into the Bitcoin data, let’s first know what methods we can use to analyze its price. As briefly explained above, there are three methods we can use: technical, fundamental, and public sentiment analysis. Each method has its own advantages and disadvantages, so it will be more accurate if done together.

  1. Technical Analysis

    Historical prices and other market data can predict future market behavior. For example, you can calculate the average market price from a 50-day period of price movement called the Simple Moving Average (SMA). You can also use the SMA in planning strategies on the price chart of your asset. For example, take the 50-day SMA for Bitcoin and divide it into weeks. From there, the price movement will be more clearly visible.

  2. Fundamental Analysis

    This uses data representing the fundamentals and underlying value of a cryptocurrency project or asset. The analysis focuses on external and internal factors to determine the value of an asset. For example, you can look at the number of day-to-day transactions of Bitcoin to assess the asset’s popularity in the market. If the number increases over a period of time, it can be an indicator that the project has value and its price can increase along with the number of transactions and users.

  3. Market Sentiment Analysis

    The use of market sentiment analysis is to predict price movements. The market sentiment to consider is the feeling or behavior of investors towards an asset. You can categorize it into bullish or bearish sentiment charts. In addition, you can also do sentiment analysis by looking at existing trends through news or trend information on Google regarding Bitcoin purchases. The Bitcoin Fear and Greed Index is one of the tools you can use in market sentiment analysis.

What Factors Affected Bitcoin Trading Initially?

After examining the types of analysis above, the next thing you can do to predict the price of Bitcoin is to study the factors that affect trading and their influence on the price of this asset. These factors have changed over time. In 2009, Bitcoin was a highly specialized asset with low liquidity. Trading this asset was done over the counter between users on BitcoinTalk or other forums who saw the value of Bitcoin as a decentralized currency. The speculation we see today in the world of Bitcoin trading has little role in determining the price of Bitcoin.

Bitcoin’s creator, Satoshi Nakamoto, mined the first Bitcoin blockchain network block in January 2009 and received 50 Bitcoin in return. He also sent 10 Bitcoin to Hal Finney a few days after the transaction. In May 2010, Bitcoin still had a price of less than $0.01. Then Bitcoin became more recognized after Laszlo Hanyecz bought two slices of Pizza with 10,000 BTC. At that time, all Bitcointalk forum users saw the transaction as something new. This trade contrasted with current usage, where you can buy everyday items easily with a Binance Visa Card.

As the price and popularity of Bitcoin grew, a small and unregulated industry joined to facilitate transactions and trading on its blockchain system. This can be seen in the exchange of crypto assets as payment systems on other market websites. The price of Bitcoin is significantly affected by the hacking of some of these websites. Some of these cases change the amount of Bitcoin in the market,cause surprising price spikes and make investors in the market hesitant to buy BTC assets.

What Factors are Affecting Bitcoin Trading Today?

Bitcoin now has more in common with other traditional assets than when it was first launched. Its widespread adoption in other industries, such as retail, finance, and politics, means that  many things influence the price of Bitcoin and trading activity related to the asset. Cryptocurrency-related investment institutions are also growing, and this has positively impacted Bitcoin. This shows that the determinants of Bitcoin’s price today differ from the factors at the beginning of Bitcoin’s development. Here is the full explanation:

  • Financial regulations are now more open to Bitcoin than ever before. As governmental knowledge about cryptocurrencies and blockchain technology increases, controls and regulations related to Bitcoin and Cryptocurrencies tend to increase. Any regulatory changes to Bitcoin and cryptocurrencies in general  impact Bitcoin price movements significantly. Note that some changes in Bitcoin’s Price are due to anti-Bitcoin regulations issued by a country and also the level of popularity in a region.
  • The state of the global economy is a major factor that directly affects the trading market and Bitcoin price movements. For example, people in countries experiencing hyperinflation will run to cryptocurrencies because their prices are not affected by inflation. For instance, with the economic crisis in Venezuela, we can see the high trading volume on LocalBitcoins, which is in the Venezuelan Bolivar. The stock market crash in 2020 also led to a bull run in Bitcoin that lasted for over a year. Bitcoin is now seen as an asset that holds value like gold. When there is no confidence in fiat currencies or an economic crisis, there is a tendency for people to buy Bitcoin assets, causing market and price swings.
  • The adoption of Bitcoin by many large corporations can also cause changes in the price of Bitcoin. Paypal, Square, Visa, and Mastercard have all supported Bitcoin, giving investors more confidence in buying the asset. Many retailers are also starting to accept Bitcoin as a means of payment. Conversely, Elon Musk’s announcement that Tesla payments could not use Bitcoin caused the price to drop from 55,000 USD to 48,500 USD.
  • However, increased speculation about the future of Bitcoin also generated more demand in the market. Increased speculation and derivatives like Bitcoin futures have also driven extra market demand. Instead of investing and holding BTC for its fundamental value, traders and speculators in the futures market are shorting BTC for profit, causing downward pressure on the price. This means that the price of Bitcoin is no longer based solely on its usefulness.

Bitcoin Price History

Since 2009, the Bitcoin price has been the subject of discussions regarding its high price volatility. The factors mentioned earlier affecting the price of Bitcoin have contributed to this volatility. Although the price of Bitcoin has experienced ups and downs, it  remains many times higher than its initial price when it was first created. 

According to CaseBitcoin, BTC assets have shown an increase of 196.7% compound annual growth rate over the past ten years. So far, there have been five significant changes in the price of Bitcoin, starting from its initial price of 1 USD to 65,000 USD in May 2021.  Here are five instances of significant Bitcoin price changes:

  • June 2011: From a price of 2.1 USD, Bitcoin increased to 32 USD within a month.
  • April 2013: After stagnating at 13 USD, the price of BTC jumped to 260 USD before dropping two days later to 45 USD.
  • December 2013: At the end of 2013, the price of Bitcoin jumped up 10 times from 125 USD to 1,160 USD and dropped again to 380 USD.
  • December 2017: After starting 2017 with a value of 1000 USD, the price jumped dramatically to 20,000 USD by the end of the year. This increase began to attract other institutions and governments interested in Bitcoin issues.
  • April 2021: As the stock and crypto markets plummeted in March 2020, Bitcoin reached a high of 63,000 USD. With the economic instability due to the Covid-19 virus, Bitcoin is seen as a store of value asset like gold.

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