Supply and Demand are the instant answer from economists, however, there must be something more to be shared. What are major factors that affect the supply and demand of Bitcoin? Ultimately there is no value apart from the perception of value, which drives the Bitcoin price. The perception of Bitcoin value is exactly the same as a stock and the expectation of its returns and revenues.
What are the major factors that affect the bitcoin price?
Table of Contents
The first factor: News
News affects the Bitcoin price. Satoshi Nakamoto has been revealed as Craig Wright, which led the price up as all the free press provided a free form of advertising for Bitcoin itself. As the community grows because of the publishers, which is from nearly 10 million wallets to 20 million. Then the amount of people involved has increased and the base case for demand. News immediate raises the demand for entering the Bitcoin ecosystem.
we are now monitoring some social data that shows how fast the bitcoin association is developing and how the conversations, which from Reddit, Twitter ect., affect the bitcoin association. You can play around with this data here and plot it against the BTC price with a host of other indicators.
The block reward halving in 2016 was going to be an interesting period for the bitcoin price because it will have a huge impact on the mining industry that might lower the price.
Second factor: Ecosystem Technology
When the Bitcoin ecosystem is completely built, it can reach the demand for its discount potential like the case of wallets such as Airbitz. that is the ability to buy Amazon goods at a discount or Starbucks vouchers. This is the main snowball effect and where a lot of heated discussions has been about whether bitcoin has a killer app that automatically brings it mainstream even if users don’t realise they’re using it.
Third factor: Government Policy
Although the Bitcoin currency policy does not depend on the government policy, it does not mean that Bitcoin price is not affected by the government policy. For instance, the action from China which allows people to use Bitcoin as payment method instead of local currency made the demand for Bitcoin increase significantly.
When Russia and the UK ban Bitcoin, there will a massively decreasing in Bitcoin price. And when the IMF releases a report calling for softer regulation to Bitcoin, which in turn will push the price higher.
Fourth factor: Technology
The Bitcoin technology has come under scrutiny for its inability to send transactions with a cheap fee due to the limitation of the block size. Although this is a top problem with management it does put a spotlight on the technology itself and highlight its own internal DNA as a cause for value shifts.
Fifth factor: Management
This is relative to the previous point. The internal slowness of the development of bitcoin can lead to a loss of faith (perception of value) and therefore a decrease in the price. This works the same as a stock losing its long-term investor. Management is critical in measuring value due to its uncertainty or surety in directing the community. Bitcoin is an Open Source project, so generally, it has a problem with leadership and direction. How, when and if bitcoin solves these concerns will be important to its price assurance.
Sixth factor: Origin
Bitcoin value depends on where it came from. For example, a banknote that has come from the proceed of crime might be worth less than one that depends on a legal case. There are black bitcoins and white bitcoins, so a difference in price could come from here. This is one factor that affects a bitcoins price.
Seventh factor: Competition
According to Porter’s five forces model, Competition is one of the factors that affect the Bitcoin price, but not so significant. Other currencies could interrupt bitcoin’s value from a number of aspects whether they are cryptocurrencies or normal currencies. Competing could destroy Bitcoin’s dominant market position.
So, all of above factors are affect to supply and demand, which directly affect Bitcoin value. Bitcoin value could be affected by many different ways that all of them plays an important role in creating image and awareness of Bitcoin price.
What do you think about what affect the Bitcoin price and other cryptocurrencies? Please comment below.