Because of Bitcoin revolutionary innovation in peer-to-peer value transfer without the need for brokers and trusts, its price has risen by hundreds of thousands in recent years. But from a deeper perspective, what are the factors contributing to the rise in the price of this asset?
Buying bitcoin is different from buying shares or securities because bitcoins is not a company, institution or organization. Unlike common currencies, bitcoin is not produced or exported by a central bank or government. For this reason, foreign policy, a country’s inflation rate, and a country’s economic growth rate, which affect the value of national currencies, do not have a direct impact on bitcoin prices. Although there are many factors that can make bitcoin prices go up and down, if we are to summarize all the factors in a few general terms, we can point out:
- Steady supply and rising demand for bitcoin
- Acceptability and Usability
- Increase the cost of bitcoins mining
- Bitcoin’s rivals are powerless
- Increasing the number of bitcoins exchanges and ATMs
- Bitcoins legislation, crises and governments’ monetary policies
- Bitcoins network stability and security
- Media, whales and price manipulation
Steady supply and rising demand for bitcoins
The bitcoin delivery is unique in its kind. Unlike national currencies where the government can change the amount of money supply by printing money, under the Bitcoin protocol and rules, only 21 million units of it will be produced under a process known as mining. Bidders, known as “extractors” or miners, deliver their powerful hardware to the bitcoins network to ensure decentralized transactions and network security. Miners race against their own hardware to find the answer to the block equation in which bitcoin transactions are located. The joining of these blocks forms the Bitcoin Blockchain. Finding the solution of the block equation, which takes an average of ten minutes each time, produces some bitcoins and is awarded as a bonus to the miner who has found the block equation.
To preserve bitcoin scarcity and prolong the extraction time of new bitcoins, a predefined event is included as Halving in the bitcoin code. Every four years (every 210,000 blocks), the reward for bitcoin mining is halved. Until the year 2012, about four years after bitcoins began, the reward of Extraction was 50 bitcoin. That is, 50 bitcoin units were produced every 10 minutes. In the year 2012, the bitcoin mining bonus reached 25, and then in year 2016, it reached 12.5 bitcoins. Now that we are writing this, 12.5 bitcoins are generated every 10 minutes in the mining process. In May 2020, halving again occurs and reduces the extraction reward to 6.25. This process is also repeated to reduce bitcoin market supply. It is estimated that the extraction of all bitcoins will take up to 2140 years.
Of course, fixed supply does not necessarily increase prices, but if the fixed supply for any reason is accompanied by an increase in demand, there is a price increase based on the principle of supply and demand. For example, the application of bitcoins or its use as a reserve (value for money) can generate demand that results in price increases.
The other reasons for the bitcoins price increase that we will discuss below are somehow related to the same supply and demand principle. In other words, each of the underlying causes themselves is one of the factors driving demand.
Acceptability and Usability
Bitcoin is made for use and its value depends directly on the popularity of the people. The more people trust Bitcoins and use it as a payment method or a means of storing value, obviously, the value will increase.
When a large store starts accepting bitcoin as a payment method, or when a large financial institution, such as gold, invests in bitcoin, a wave of hope is injected into the market and often raises the price of bitcoins dramatically.
Bitcoin financial institutions used to be ridiculed and even called it scams, but now they have to think about it. The more formal Bitcoins is as a form of payment or investment tool and its acceptance spreads to more people, the market gets bigger and bigger.
Increase the cost of bitcoins mining
Bitcoins mining requires the use of powerful hardware that consumes a lot of power. On the other hand, as mentioned above, the production rate of new bitcoins is gradually decreasing, and since mining is a competitive process, the miners have to devote more processing power to the network to stay competitive. So, assuming the demand for bitcoins increases, if the cost of bitcoins mining increases, the miners will refuse to market their bitcoins at low prices and the price will rise.
Consider this example to understand this. Suppose a rare medicinal plant is found on the surface, priced at $100 each. But if this medicinal plant is on a high mountain that costs $50 to reach it, the price of the plant will be no more than $100 and should be at least $150. But on the other hand, if there is no demand for the plant, it doesn’t matter how difficult it is to reach, because no one is willing to pay for it.
Bitcoin’s rivals are powerless
At the time of this writing, more than 2500 different Cryptocurrencies are traded with various names and symbols on digital currency exchanges. On the other hand, in view of the currency problems, the need for decentralized and global digital currencies seems to be increasing. Thus, among the available digital currencies, a tough competition has begun to reach the mainstream and become popular among the public.
Bitcoins now has more chances to reach the mainstream than any other digital currency. The king of digital currencies, which accounts for more than 62% of all digital currency markets at the time of this writing, has experienced no security breach for more than 11 years, and even with the addition of more miners and increased network Hashrates, security has The intensity has increased. Current Bitcoins competitors currently have nothing in their purse, which could lead to more popularity of Bitcoins and ultimately higher prices. But perhaps powerful competitors are coming.
Increasing the number of bitcoin exchanges and ATMs
At present, bitcoins is easier to access than all digital currencies, but there is still room for improvement.
Almost all digital currency exchanges buy bitcoin as the first currency, apart from any other digital currency. But access to bitcoins and converting cash into digital currency is still a challenge for users. These challenges diminish the urge to use bitcoins. Increasing the number of currency exchanges and making it easier to purchase bitcoins can increase the price of bitcoin.
Bitcoin ATMs, on the other hand, have a special place in the digital currency. Like traditional ATMs that have helped to increase credit card acceptance by installing on the streets, airports, subway stations, etc., Bitcoin ATMs increase access to bitcoin by converting cash into bitcoins or vice versa. The good news for Bitcoin investors is that the process of installing Bitcoin ATMs around the world is on the rise.
Bitcoins legislation, crises and governments’ monetary policies
Governments, both directly and indirectly, can increase bitcoin prices through their actions. News of bitcoin legislation by governments, especially in developed countries, has often had an impact on prices. Global crises, such as the tensions between Iran and the United States, are also driving uncertainty about the future, driving a wave of capital into the bitcoin market. Bitcoins is considered a safe haven for people in times of crisis to protect the value of their money.
Sudden government decisions on bitcoin have an immediate impact on bitcoins prices at the outset of the announcement. For example, the news that China’s bitcoin bans were banned in China in 2013 and 2017, and then immediately, caused a sharp fall in prices. Or accepting Bitcoin ETFs, which make this asset a reliable investment tool, can quickly raise the price. The gradual decisions of governments gradually complete the puzzle of legislation and ultimately determine the price trend. Bitcoin regulation, if done correctly, is not only harmful but also useful when it is formalized and by large and large corporate investors.
Governments’ monetary policies may also play a role in bitcoin price jumps. When governments print money to stagnate, investors can turn to bitcoins to preserve their wealth. For example, in the wake of the financial crisis in Cyprus in the year 2013, a wave of capital flows to the bitcoins market.
Bitcoin network stability and security
What sets Bitcoin apart from other currencies and assets is its decentralization and security. Over the course of more than 11 years of bitcoins activity, the network’s security has been enhanced, the basic rules of its protocol have not changed, so far no transactions have been returned and no one has been able to block a bitcoin transaction.
The farther we go and the bitcoins network stays stable, the more trust it will have. The convenience of not hacking assets, steady supply, blocking money, and non-return transactions makes Bitcoins gradually gaining popularity and becoming a more popular store of value or payment method. This is also a factor in increasing demand and increasing bitcoins value.
Media, whales and price manipulation
The world’s major media, with hundreds of millions of audiences, wealthy people are known as the “whale,” and influential people can also raise or lower the price of bitcoins in the short term.
Large media can spur price jumps with positive and sometimes exaggerated content. On the other hand, large-bodied individuals, or whales, can make a positive price by placing heavy purchase orders on digital currency exchanges. In addition, currency traders and influencers in the field of digital currency have repeatedly manipulated prices with measures such as creating artificial orders and disrupting supply and demand. As an example, bitcoin’s insane growth in December 2017 has brought the price of bitcoins to its historic high of $20,000. According to some experts, that long jump has been price manipulation.
It should be remembered, however, that all assets have the ability to manipulate prices. However, in the current situation, bitcoins is more prone to manipulation because of its small size.
Bitcoin is scarce and in constant supply. Therefore, anything that can reduce supply or increase demand will increase bitcoins prices. Sometimes the price rise is artificial and is caused by manipulation. Here are some of the most important factors that can drive bitcoins price growth, but don’t forget that any other factor may be contributing to price fluctuations.