Bitcoin’s price seems to surge overnight, shocking both seasoned investors and newcomers. One moment, the price hovers around $20,000; the next, it's over $60,000. What causes Bitcoin’s price to spike so dramatically? What Moves Bitcoin? This article explores the underlying factors that drive Bitcoin supply and demand. Understanding these key drivers can help you predict Bitcoin's future performance and make informed investment decisions.
Bitcoin Magazine Pro's Bitcoin analysis offers valuable insights to help readers understand Bitcoin’s price fluctuation. Emphasizing political, economic, and market factors, this resource will help you understand what moves Bitcoin.
Bitcoin Price Reaches Record High Amid U.S. Election News
Political developments can heavily influence market sentiment surrounding Bitcoin, and the results of the recent U.S. elections are no exception. On November 6, Bitcoin’s price surged past $75,000 for the first time, reaching a record high of $75,371.69, in the wake of elections that indicated former president Donald Trump could reclaim the White House in 2024. This price increase is especially significant given that it comes just days after Bitcoin surged past $73,000, with the previous record high of $73,797.98 set on March 14, 2022.
Why are Bitcoin Investors Excited About Trump?
Investors care about political developments because they can majorly impact how markets operate and how much confidence traders have in specific assets like Bitcoin. In this case, the rising odds of a Trump victory have boosted sentiment for Bitcoin because he is seen as more supportive of BTC than Democratic candidate Kamala Harris.
Trump has openly praised Bitcoin and even pledged to make the U.S. “the Bitcoin capital of the world” if elected. Harris has made negative comments about Bitcoin and advocated for tighter sector regulation.
What About the Election Results Boosting Traditional Markets?
While the election results remain unclear, investors anticipate a potential Republican victory. The party has regained control of the Senate, which may lead to less regulation on the BTC market. Signs of a possible Trump victory boosted Bitcoin and powered a rally in U.S. stocks, the U.S. dollar index, and other stock markets.
The U.S. dollar index rose 1.9% to 105.30, its highest level almost four months. Futures for the S&P 500 gained 1.7%, and the Dow Jones Industrial Average rose 1.8%. Nasdaq composite futures were 1.8% higher, signaling a strong start for U.S. markets.
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What Moves Bitcoin? Key Factors Behind the Latest Bitcoin Rally
Media coverage of Bitcoin has a huge impact on prices. Positive news attracts new buyers, while bad news can spark panic selling. In early 2023, Bitcoin’s price was stuck in a rut, but a reversal from the channel’s lower boundary in early March set a new bullish direction.
The price broke through a red line (acting as the upper limit of a corrective channel) in late March, and the current bullish momentum is reflected in a sharply ascending channel. Should Bitcoin’s new historical peak attract more buyers, the price may continue to rise.
Supply and Demand for Bitcoin
Bitcoin’s price changes because of its supply (scarcity), the market’s demand, media and news, and regulatory changes. Some researchers suggest that the cost of producing a Bitcoin also influences its prices, but most analyses use assumed data rather than facts.
Bitcoin is not issued by a central bank or backed by a government. The monetary policy tools, inflation rates, and economic growth measurements that typically influence the value of a currency have yet to be observed applied to Bitcoin.
Effects of Supply on Bitcoin’s Price
The supply of an asset plays a major role in determining its price. A scarce asset is likelier to have high prices, whereas one available in plenty will have low prices. Bitcoin’s supply is generally well-publicized, as there will only ever be 21 million produced and only a specific amount created per year. Its protocol only allows new Bitcoins to be rewarded at a fixed rate, and that rate is designed to slow down over time.
The Bitcoin block reward is reduced about every four years. This is called a halving, where the number of coins given as a reward for successfully mining a block is cut in half. The last halving was on April 19, 2024, which brought the block reward to 3.125 Bitcoin. Therefore, Bitcoin’s future supply is dwindling, which adds to demand. This is similar to a reduction in corn supply if harvests were to be reduced every four years until no more were harvested, and it was publicly advertised that it would happen corn prices would skyrocket.
Bitcoin’s Price and Demand
Bitcoin has attracted the attention of retail and institutional investors, increasing demand fueled by media coverage, investing “experts,” and business owners touting the value a Bitcoin has and will have. Bitcoin has also become popular in countries with high inflation and devalued currencies, such as Venezuela.
It is popular with those who use it to transfer large sums of money for illicit and illegal activities. This means that shrinkage in future supply has coupled with a surge in demand to fuel a price rise. Bitcoin’s price fluctuates in alternating booms and bust periods. For example, a run-up in Bitcoin’s prices in 2017 was succeeded by a prolonged low, then two sharp increases and downticks through 2021. In 2024, its price soared to more than $73,800 on one exchange after the Securities and Exchange Commission approved several Bitcoin Spot ETFs due to increased demand.
Bitcoin’s Price and Regulations
Bitcoin was released after a financial crisis precipitated by the loosening of regulations in the derivatives market. BTC remains unregulated and has garnered a reputation for its cross-border capabilities and regulation-free ecosystem. Bitcoin’s lack of regulatory status has both benefits and drawbacks. The absence of regulation means it can be used freely across borders and is not subject to the same government-imposed controls as other currencies.
Impact of Investor Sentiment and Regulatory Decisions on Bitcoin Prices
Its price is very responsive to regulatory developments. Investors also influence prices when they become too excited about an asset, causing it to be overvalued. They can also cause it to drop when they panic about possible losses.
For example, several rulings delivered by the Securities and Exchange Commission (SEC) in the United States can impact its price. In October 2021, prices surged to $69,000 a few weeks after the SEC approved the first U.S. Bitcoin-linked ETF: the ProShares Bitcoin Strategy ETF (BITO). A few months after reaching that price, Bitcoin’s price hovered around $40,000. China’s
Effects of China's Bitcoin Ban on Supply, Demand, and Market Recovery
Bitcoin trading and transaction ban in September 2021 affected BTC’s supply and demand. Mining farms in China were forced to pack up and move to BTC-friendly countries. Prices fell from around $51,000 at the beginning of September to about $41,000 at the end of the month, then quickly regained and surpassed previous price levels as operations picked back up.
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Will Bitcoin Hold its Value?
Many factors have contributed to Bitcoin’s volatility. These factors are primarily related to the currency's nascency and the dynamics of the Bitcoin markets. Investors regularly and drastically change their expectations for the currency based on world events.
The Bitcoin markets need to absorb these supply and demand shocks more efficiently without impacting the market. This can result in drastic changes in Bitcoin’s spot price.
Bitcoin’s Role is Still Being Established
Bitcoin has only existed since 2009. In that time, it has gone from a small project with a dozen users to a reserve currency used by Fortune 500 companies. The world is still figuring out how Bitcoin will fit into the global economy.
The future of Bitcoin is influenced by actions taken in the present. As lawmakers and financial institutions continue to address Bitcoin, their actions and statements can cause major fluctuations in supply and demand.
Speculation Without Cash Flows
The nature of the asset exacerbates the speculation around Bitcoin. Bitcoin’s value as an investment purely depends on its future value. Most are priced based on the future value of their cash flows. This might mean the dividends a stock will pay out or the coupons an investor receives from a bond. There will always be some uncertainty around these cash flows, but they create a relatively clear method for modeling the asset's price, which creates a perception of lower risk among investors.
Cash flows do not determine Bitcoin’s value. Instead, the price and demand depend on how Bitcoin is used in the global economy. This results in a much wider range of price projections, with every assumption drastically impacting price expectations.
What is Volatility?
Volatility measures an asset’s price variance relative to its average over time. Assets that fluctuate significantly in price are considered more volatile. Bitcoin has increased in value by approximately 50x in the last five years and is considerably more volatile.
Volatility may indicate the potential for above-average returns on trade, but it is also one of the main risk indicators. This can make a Bitcoin investment less predictable in the short term than other investments.
Why is Bitcoin Volatile?
Many factors have contributed to Bitcoin’s volatility. These factors are primarily related to the currency's nascency and the dynamics of the Bitcoin markets. Investors regularly and drastically change their expectations for the currency based on world events.
The Bitcoin markets need to be more efficient to absorb these supply and demand shocks without large impacts on the market. This can result in drastic changes in Bitcoin’s spot price.
Small Market Capitalization
The distribution of Bitcoin also plays a role in rapid price movements. The mechanics of trading depend on the supply and demand of the asset. Bitcoin gets much public attention, but its market capitalization is only ~$1 trillion, only 10% of gold’s market cap. This makes it possible for a single entity or wealthy individual to affect the price by buying or selling Bitcoin single-handedly.
Individual people or groups own large amounts of Bitcoin. If a large Bitcoin holder decides to sell, the currency supply increases significantly in a short time. Assets with lower market depth will require smaller amounts of capital to greatly impact the market.
Immature Markets
The smaller market and recent creation of Bitcoin means that the markets and financial products that support Bitcoin need to be developed more. Compared to assets like stocks, Bitcoin is very difficult for investors to gain exposure to. The smaller value of the market also yields less market depth for large traders.
Whereas a few major stock exchanges, such as the New York Stock Exchange, dominate the market, Bitcoin liquidity is fractured across many different exchanges. It will offer a comprehensive set of derivatives and other ways of hedging or leveraging a position. Bitcoin derivatives products are only in their infancy, further constraining how investor exposure to Bitcoin can be managed. These derivative products will help smooth Bitcoin volatility as they evolve and mature.
Will Bitcoin Remain Volatile?
Many of the factors that drove Bitcoin’s volatility in the past will become less relevant as time goes on. Countries worldwide are progressively adding rules to govern how their citizens can use the currency. As the long-term regulations around Bitcoin become clearer, price volatility should decline.
Individual holders' market-moving potential is likely to decline as the asset grows. As Bitcoin becomes more expensive, more fiat currency will be required to put upward pressure on the market price.
Market Efficiency and Price Stability in Bitcoin: How Large Holders Impact Sell Pressure
Large individual holders can still drastically increase sell pressure, putting downward pressure on the price. These large holders can only do this for a while. Either they will hold their Bitcoin and restrict sell pressure or sell it, contributing to a more evenly distributed asset.
The Bitcoin markets are constantly becoming more efficient. Investors are gaining access to new forms of exposure, and the markets are becoming increasingly efficient. Efficient markets will allow large trades without outsized impacts on the Bitcoin price. This may not affect the macro trends of Bitcoin’s price, but it will help prevent large swings in any given Bitcoin market.
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