Bitcoin has seen a surge in both price and adoption over the last year and a half, taking us all along for the ride on the rollercoaster of price movements. As we explore the 6 main drivers of the Bitcoin price, we’re looking at the factors that caused the most influence (both bullish and bearish) on the market’s wild swings this year so far.
2020 was the year of institutional investment as big firms like MicroStrategy started moving their company reserves from fiat to Bitcoin, and encouraging others to do the same. However, 2021 has been the year of mass adoption as more companies and retail investors seek to discover the benefits of the digital asset.
As more people learn about Bitcoin and enter the market, the value continues to rise. This year has proven that more people are entering the space, illustrated by crowdfunding events like Circle raising $440 million in May and Fireblocks recently raising $310 million.
Many companies are also incorporating Bitcoin in their businesses, whether as a payment option, store of value, or applications to make the market more accessible and approachable. With companies pouring millions into the development of the crypto space, the magnitude of these actions will be felt in years to come.
While Bitcoin is a decentralized operation free from the politics of a centralized institution, it still falls victim to authoritative regulation. These last few months have seen a wide range of regulations put in place around the world halting the progressive growth of the original cryptocurrency.
China played a big role in this, arguably the largest, as the country sought to clamp down on crypto trading and mining farms. China contributes to two-thirds of all Bitcoin mining and the ban has had unfortunate effects on the digital asset market. As the country continues to close down mining farms in several provinces, miners are having to seek alternative options when it comes to relocating.
Another major blow to the market is the recent ban on Binance trading in various jurisdictions. The ban has been set into effect in Hong Kong, Japan, Malaysia and most recently the UK, where several banks have blocked payments to the exchange. The exchange will need to review and strengthen their compliance within the various countries.
Inflation has been a catch 22 situation when it comes to the crypto markets. In recent months we’ve witnessed an increase in inflation rates for fiat currencies. As the spending power weakens, many risk assets are being priced out and people are becoming increasingly aware of their monetary values melting away.
While this has had a dampening effect on the market and general sentiment, the other side of the coin is that with rising interest rates many are moving their funds from inflationary fiat currencies to the deflationary world of Bitcoin. This is likely to continue to grow in the coming months, particularly amongst the more conservative investors.
Despite the entire cryptocurrency market being created to counter the use of banks, it remains evident that banking institutions still have an influence over the markets. Earlier this year, Goldman Sachs released a report stating that Ethereum has a “great chance of overtaking Bitcoin as a reserve currency.” This instigated a significant increase in the Ethereum price, illustrating their influence over the crypto markets.
Goldman Sachs and other big firms like JP Morgan have been working on cryptocurrency investment products which have all proved to be very popular. With banks behind the crypto space, this indicates a positive sentiment among the more traditional financial markets.
We couldn’t cover the 6 main drivers of the Bitcoin price without mentioning crypto whales. The whales have long since had a significant effect on the market, pulling the price trends along with them.
Whales refer to crypto wallets holding large amounts of a particular cryptocurrency, enough to influence the markets. If a whale chooses to execute an extremely large sell order, this will have a large effect on volatility.
It was reported in February that the three biggest whales hold 3% of the BTC in circulation, equating to $22.4 billion worth. Bitcoin whales also tend to have an influence on the market sentiment, subtlety signalling to retail investors when to buy and sell.
Last but not least, market influencers. While not everyone is a fan of them, there’s no denying their power. It must be said that some influencers provide fact-based insights, while others less so. Enter Elon Musk Bitcoin influencer of 2021.
The Tesla CEO has instigated many price swings as he tweeted announcements from his personal account. In February, Musk announced that the electric car company would start accepting Bitcoin for payments sending the price flying. Only to retract this statement (and payment option) a few weeks later, sending the price crashing. He recently mentioned that Tesla “might” start accepting BTC again, instigating another increase. Thanks to Elon Musk Bitcoin has had a wild few months.
Bitcoin Remains A Solid Investment
No matter what the main price drivers of the Bitcoin price may be up to, the fact remains that Bitcoin is a viable and trustworthy investment. According to Coin Market Cap, the cryptocurrency has experienced a 27,850% in the last 8 years. If you’re looking to add Bitcoin to your investment portfolio, or more Bitcoin, you can do so safely and conveniently with Oobit.