What factors influence the price of Bitcoin (BTC)?

By rotide
Created 29/06/2021 - 16:07
Bitcoin graphic.JPG

Bitcoin (BTC) has always been a decidedly volatile entity, with its recent price performance embodying this perfectly. More specifically, BTC saw its value plunge by nearly 50% between April 16th and June 9th [1], before recovering slightly to $38,557.48 on June 17th.

Of course, there are various factors that impact on the value of BTC, many of which also contribute to its volatility. Remember, Bitcoin is a completely decentralised asset that's free from a central authority or banking control, so it's truly unique in its immutability and resistance to manipulation.

In this post, we'll appraise the main factors that influence the price of Bitcoin while asking what the future has in store for this asset.

What Factors Impact on the Price of Bitcoin?

Let's start by summarising the basic factors that impact on the price of Bitcoin, including the following:

●      Supply and Demand: Supply and demand impacts on all asset values in real-time, but these factors are especially relevant in the crypto space due to the finite supply of the asset. It's thought that approximately 88.5% of the total BTC supply has been mined as of December 2020, with this continually dwindling supply playing a significant role in driving the cost of Bitcoin up over the course of the last 12 to 18 months.

●      The Relative Lack of Liquidity: While BTC is the single most liquid crypto asset, this level of liquidity is considerably lower than those associated with fiat currencies like the USD [2] and the GBP. This means that it can be slightly harder to buy and sell BTC in the real-time marketplace, which is why daily trading volumes are relatively small and single events can have a much bigger impact on price.

●      News Events and Speculation: News events also impact on all assets, particularly those that are traded as derivative or similar instruments (such as Bitcoin). This is because such assets don't provide a secure or tangible source of wealth, while the lack of widespread or mainstream crypto adoption also compounds the impact of both positive and negative news stories. As we've touched on, the lack of liquidity is also an issue here, and one that's unlikely to be resolved anytime soon.

Recent BTC Price Hikes and the Future for the Crypto Asset

Despite the recent challenges facing BTC and the impact of various factors in price movements, there's no doubt that the asset has enjoyed extended growth through 2020 and beyond.

For example, the price of Bitcoin was $9,457.63 at the end of June 18th, 2020, and even after its recent slump, it remains more than four-times higher just 12 months later ($38,557.48).

At the asset's peak of $63,346.79 on April 16th, this price had showcased nearly seven-fold growth, so there's no doubt that Bitcoin remains on an upward trajectory and most likely to achieve impressive, long-term growth.

Online broker Tickmill has also reported bullish momentum in BTC/USD [3], highlighting that another spike in Bitcoin prices could well follow at the beginning of quarter three.

Ultimately, these facts point to continued growth and expansion in Bitcoin prices over an extended period of time, with experts predicting that BTC will break through several price barriers in the months and years ahead.

For example, Bitcoin investor and billionaire venture capitalist Tim Draper has consistently predicted that the asset will reach $250,000 [4] by the end of 2022, while Prime XBT has forecast that the price will sit somewhere between $275,000 and a staggering $1,000,000 between 2024 and 2025.

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