What affects the Bitcoin price?

Thursday, 28 Sep 2017 17:10
Supply and Demand is the immediate economists answer - but there is a little bit more to the story behind the scenes that fleshes out the more fundamental moves in bitcoins price. Ultimately there is no value apart from the perception of value - and that is what drives the Bitcoin price - the perception of its value - just like a stock and the expectation of its returns and revenues.

News
The news affects its Bitcoin price. Satoshi Nakamoto being uncovered as Craig Wright led the price up as all the free press provided a free form of advertising for Bitcoin itself. As the community grows because of press - as 10 million wallets becomes 20 million - then the amount of people involved has increased and the base case for demand. News increases the immediate demand flow from people entering the ecosystem.

We track some social data which shows you how quickly the bitcoin community is growing and how active it is in terms of chatter - reddit posts, twitter followers etc. 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 is going to be an interesting period for the bitcoin price as it will have huge ramifications on the mining industry that might depress the price whilst generating huge

Ecosystem Technology
As the ecosystem gets built up around bitcoin it can gain demand for its discount potential as in the case of wallets such as airbitz. - the ability to buy amazon goods at a discount or starbucks vouchers! This is the main snowball effect and where a lot of heated discussion has been about whether bitcoin has a killer app that automatically brings it mainstream even if users don't realise they're using it.

Government Policy
Even though Bitcoin monetary policy is itself independent of Government policy that doesn't mean that it isn't affected by Government policy. For example the recent moves in China, Bitcoin is itself is used as a means to exit local currency and as a flight to safety. So increased demand and supply on the state of the global economy and its capital controls.

As Russia bans bitcoin or thee UK pushes it there will be the resultant shifts in value due to the legal structure placed by us on the technology. The same is true as when the IMF releases a report calling for softer regulation, which is turn will spur the price higher as it means Governments are being encouraged to be lenient to allow the currency to grow.

Read more about the legal state of Bitcoin and Crypto Currencies here.

TechnologyThe Bitcoin technology has come under scrutiny for its inability to send transactions cheaply because of the limited blocksize. Although this is ultimately a problem with governance it does put a spotlight on the technology itself and highlight its own internal DNA as a cause for value shifts.

Governance
This ties in with the previous point. The fractiousness internal to the development of bitcoin can lead to a loss of faith (perception of value) and hence a decrease in the price. Just like a stock losing its long term innovator - Governance is crucial in determining value as it is uncertainty or surety given in steering the community. Open Source projects like Bitcoin generally have a problem with leadership and direction - how, when and if bitcoin resolves these issues will be crucial to its price stability.

Provenance
Bitcoin has value depending on where its come from. For example a bank note that has come from the proceeds of crime might be worth less than one that hasn't depending on circumstances . There are black bitcoins and white bitcoins so a differential in price could occur here. But this point here is about what affects a bitcoins value.

Competition
Moving down Porter's five forces avenue,but competition does play a large part in the value of bitcoin. Unkown unknowns could disrupt bitcoin's value from a number of angles whether they are crypto currencies at all, and that said competing crypto's could eat away at Bitcoin's dominant market position if leadership and direction means the blocksize debate becomes a bug bear for transaction costs going forward.

So all in all its rather a lot that effects supply and demand that in turn effects bitcoin's value. It can be affected by numerous ways that all play their part of creating its image and its perception of value. Can you value Bitcoin or another crypto currency - a question for another time.
If you feel like you understand what makes the price of Bitcoin move, then you can try trading Bitcoin with leverage on the Bitmex exchange.
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