Bitcoin’s price has become the center of attraction in the crypto world since its recent mammoth price uptick. Bitcoin was floating around in the lower $4,000s at the beginning of April this year and now it is boasting a staggering $11,114 for its price while showing a 5.59% decrease in the past 24 hours alone. There is no physical commodity backing bitcoin. So how does the price fluctuations occur if there is no actual physical thing like gold backing it? The answer: pure speculation.
In order to understand the possible factors that might have resulted in bitcoin (BTC) price surge from lower $4,000s to $11,000+, BlockPublisher reached out to some industry experts. Here are some of the thoughts floating around:
“The recent uptick in Bitcoin’s price is purely driven by speculation that cryptocurrency will be a viable long term form of currency. The recent price decline pressured short term speculators to abandon their positions and they sold. When the price reached a very low point, value investors and other speculators came back in the market hoping they were able to get in at a low point. The recent news about Facebook launching Libra and other positive news helped encourage other speculators to get back into the market.” – Lou Haverty, CFA, Financial Analyst Insider
Speculation mainly controls the bitcoin price and whatever hype is built around the asset, it chooses to take that exact path in terms of its price as well. If there is a positive aura developed around bitcoin and people are expecting a bull-run, investors step in to buy the asset and thus the price increases even further based on the simple supply-demand mechanism. Similarly, the fear of a bear-run removes investors from this space thus resulting in a drop. The FOMO (fear of missing out) also plays a huge role in bringing new investors in and spiking up the price.
Speculation is people believing that the asset carries some worth and will also be worth something in the future. Still, there is a need to understand the erratic and massive upticks and downfalls that are seen in bitcoin’s price overall. The volatility in bitcoin’s price is a massive issue.
One day the asset is seen shooting up and the very next day it is down on its knees. This volatile nature is also something that keeps bitcoin from becoming a globally accepted payment channel.
“Several factors are driving the current bitcoin price increase – we are less than a year away from the block reward being cut in half which, overnight, will cut the new supply of bitcoins in half (this has always been a very bullish period in the past); true price discovery, as people begin to understand real digital scarcity; and the global macro backdrop, with central bankers printing money that will ultimately lead to inflation and has already resulted in 13 trillion of negative yielding debt. Money eventually flows to where it is treated best and people are figuring out that bitcoin is a very valuable and scarce asset that they want to own.” – Cole Walton, Co-Founder of Plouton Mining and Head Trader at Kanos Capital Management.
One of the prime factors that possibly have triggered such a strong interest in bitcoin right now is the “halvening” event that is expected to happen in the bitcoin world next year. In the bitcoin world, the mining reward of newly minted bitcoin that is given to the miners in the network is reduced by half after roughly 4 years. In this way, the supply of newly-minted bitcoin in the network gets reduced.
The next halvening is supposed to occur in May of 2020, less than a year from now. The advancement made by cryptos on both technological and legislative fronts might just have triggered investors to buy bitcoins with the possibility of its price getting increased as a result of the reduced supply next year. Besides, Facebook’s announcement of launching their own cryptocurrency, Libra, has also affected the increased adoption of bitcoin and its resultant price spike.
“I would not say there is one specific reason as to why the bitcoin price is surging. From a technical point of view, we saw the bottom at around $3,000 (which is around 500% from the all time high price). Investors and big businesses realised this discount and FOMO kicked in.” – Chris Skordis, Editor-in-Chief, Inside Bitcoins
The bull-run of 2017 resulted in many “bitcoin millionaires”. These were mainly those people who were either early adopters or those who cashed in and cashed out timely as bitcoin rose from a few thousand to almost $20,000s before coming back down again. Now, whenever the chances of a prolonged bull-run appear, new investors flock into this space with the hopes of getting quick benefits. The price spike thus increases the adoption of the asset among the public which raises the price up again based on the simple supply-demand. This fear of missing out on an opportunity of a lifetime is a big factor in pumping the price of bitcoin up.
Moving on from here, many expectations for crossing the all-time high (ATH) price of bitcoin are being built up. The hype is real and the FOMO is building; it will be interesting to see what happens. Nothing can be said for sure about the bitcoin world. As John McAfee said:
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.