Volatility in bitcoin price and its tendency to gain erratic and mammoth price increases makes bitcoin a thing to always look out for in the investors community. But what are the factors bitcoin’s price depends on?
BlockPublisher got some expert opinions to help one understand the underlying factors affecting the asset’s price in this space.
Kyle Asman – Partner and Co-Founder at BX3 Capital
It’s about supply and demand. Bitcoin doesn’t have a giant market in terms of volume or market cap. When the chart looks good or there is positive news flow, it brings buyers to the table, driving the price higher.
AkshayMakadiya – Crypto Journalist & Founder at RankLane
Government regulations and mainstream media adoption are the best factors that can boost the bitcoin price to the moon overnight.
Government Regulations – As the price of virtual currencies climbed at exceptional rates in 2017 and in 2018, governments and regulatory bodies across the world began scrambling to regulate it. The act was intended to collect the tax and protect the investors.
Last year, the Chinese government put a blanket ban on domestic crypto exchanges and ICOs, which affected the bitcoin price so badly.
Chris Skordis – Editor-in-Chief InsideBitcoins
- Government Regulations and New Laws
Bitcoin is a decentralized currency that is becoming increasingly popular. This means that governments are getting involved in cryptocurrency, bringing out new laws and regulations. Not all laws and regulations are negative, with Japan being a great example of this. In April 2017 Japan started recognizing bitcoin as legal tender and a big price increase followed this.
The reason why cryptocurrency is so exciting is because negative news does not always mean a decrease in price, even with most serious of news. A recent example of this is when in April 2019 China announced that they want to ban bitcoin mining – this was when bitcoin was at the low bottom of $5000 before it started rallying to almost $9000. Bad news does not always indicate negative price movement, and good news does not guarantee a price increase.
There is lots of discussion now regarding the new Token Taxonomy Act being introduced in the U.S. Congress, which would give blockchain start-ups a head-start if the Act was passed and signed into law.
- Fear, Uncertainty and Doubt (FUD) and Media Coverage
The mainstream media are always getting involved in the news regarding bitcoin and its price movement. When it is rising a lot, there will be various ‘bubble’ posts – when it is decreasing there will be many ‘bubble has popped’ posts. Media coverage has been rather negative since the fall of $20,000 in January 2017 as investors lost lots of confidence.
However, recently we are seeing bitcoin rallying and that is turning some media positive again. On Twitter you may see CNBC Fast Money tweeting their opinion and news about bitcoin’s price – however, there have been countless examples of when counter-trading their tweets would have been rather profitable!
- Technological Advancements and Big Companies using Blockchain
If the cryptocurrency market as a whole has legitimate projects making lots of progress, reducing fees, transaction times and increasing security then this is positive as a whole. If a giant tech company such as Microsoft announces they are starting to use blockchain, this can impact the news as it means huge funds will be flowing into the industry, making way for more research and technological advancements.
From the opinions listed here, one can clearly map out some of the major factors controlling bitcoins price.
- Supply and Demand
- FUD – Fear, Uncertainty and Doubt
- Government Regulation
- Technological Advancement
- FOMO – Fear of Missing Out
- Media Coverage and Hype
Since there is no physical backing of the asset, FUD and FOMO are arguably the strongest factors behind bitcoin’s price rallies. As the price fluctuates, more people step into this world with the hopes of its price rising up in the future so that they can get maximum benefits. As more people buy the asset, its price increases based on the simple supply-and-demand mechanism. But one of the negative factors also controlling bitcoin’s price is the manipulation by big whales.
Bitcoin’s market capitalization is too small as compared to big financial institutions right now. Big investors who enter this space use pump-and-dump strategies to artificially manipulate the price of bitcoin in their own favor. Huge quantities of bitcoin buying shorts the market of the asset supply thus the price rises up. When the price bloats, dumping them again makes the price come down thus resulting in benefits for the manipulating parties.
Bitcoin’s price also carries huge significance for bitcoin’s adoption. As the price lowers down, trust regarding the asset fluctuates in the general public as negative media coverage is usually observed. Sharp rises bring a lot of new people in with the hopes of making a quick buck. But in the long-run, a more stable price makes sense for overall adoption of bitcoin in both the public and among the institutional domain.
For the future, many bitcoin predictions are floating around regarding asset’s price. While conventional businessmen like Warren Buffet dismiss the asset completely, gurus like John McAfee support it fully and are extremely bullish of its future. John McAfee has stated:
I don’t care if it’s a penny today, it’s going to be 2 million dollars very soon…What’s happening in the market has nothing to do with the reality of its value.
All in all, a lot of capital is flowing into the blockchain and crypto world right now alongside the huge inflow of intellect. Advancements are being made in this decade-old world of bitcoin both in the technological and legislative fronts so that the asset becomes more globally accepted by people and by big financial institutions.
If regulatory clarity is achieved and institutional investment flows into this world, it is expected that the price of bitcoin will increase and will get more stable. If things go right, McAfee’s million dollar prediction might just become a reality.