What determines the rate of Bitcoin

Many people nostalgically recall the 2011bitcoin rally, when in just a few months the price rocketed from $1 per 1BTC in February to $9 in May and $29.5 in June. Not to mention the cost of the very first cryptocurrency just 2 years before – in 2009 just $1could have been exchanged for as much as 1309.3BTC, according to the rate set by the New Liberty Standard.

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Indeed, early investors had really incredible prospects with BTC price showing an impressive growth in just a few years. And December 2017 has been a pure explosion when bitcoin has been reaching the $20,000 level.

The illustrative example of bitcoin price spikes based on CoinMarketCap data

Yes, there has been price falls, as clearly illustrates the above placed graph. Yet these price decreases gave lots of people a good chance to enter the market before bitcoin has started to show the impressive growth. At the same time, the general price trend remains positive, despite price drops. That is why one of the main issues for potential bitcoin investors is still the ability to predict in advance the growth or fall of the rate of bitcoin (BTC).

Bitcoin rate — how to learn to determine the price drivers

How mining and halving affect the bitcoin exchange rate. Сryptomarket analysts predict that the last BTC will be mined not earlier than in 2140. Until then, mining (receiving a cryptocurrency reward for verifying transactions by computing mathematical equations on special equipment) and halving (an algorithm designed to keep inflation in check by increasing mining difficulty and reducing the reward for block verification in half) will affect the value of bitcoin. Cryptomarket pioneers has already formulated the following hypothesis: each halving event (restriction of the coin supply) leads to the BTC price growth. In turn, the increase of the coin price attracts more miners and other stakeholders to the market. Consequently, it increases the demand for the cryptoasset and further pumps the price.

How the very first BTC halving affected its price in 2012

A week after the halving, which took place on the 210,000 block on November 28, 2012, the price for 1 BTC increased by almost $1 (from $ 12.25 to$ 13.5 per coin). And by mid-March 2013, the cost was already about $50 per 1 BTC, up to price spike to $260. In other words, just in a little more than 4 months after halving, the price of Bitcoin has increased almost 21x! Demand from the institutional market participants has an impact on the price as well. This could be clearly seen by the steadily growing volumes of BTC trading on specialized exchanges, for example, on Bakkt.

Bakkt BTC trading volumes growth graph from September 23 to November 10, 2019

Recently it was announced on the official Twitter account of Bakkt that bitcoin futures volumes trading has reached another ATH (all time high), that also implies a possible positive impact on the growth of the bitcoin price.

Government and other regulatory authorities influence. No matter how strongly crypto enthusiasts maintain that the crypto exchange rates are not affected by official statements regarding cryptocurrencies, in reality everything is interconnected. For example, after the statement of Chinese President XI Jinping (October 26, 2019) on the possible softening of Chinese government stance to blockchain projects and cryptocurrencies, the BTC exchange rate immediately skyrocketed by 42%. The news was accompanied by an announcement that much anticipated by the cryptocommunity new Chinese cryptocurrency regulation will come into force in the nearest future (at January 1, 2020).

The graph, which clearly illustrates the sharp BTC price spike after the official announcement made by XI Jinping on October 26, 2019.

However, even the most experienced analyst, who perfectly knows the cryptocurrencies drivers by the main indicators, will never be able to predict with 100% accuracy the future ups and downs of the crypto market. It is so because in addition to fundamental indicators and graphs, there is yet another key factor – so called the crowd effect. Here two priority factors play the decisive role: FOMO (fear of missing out) and FOBO (fear of better options). These psychological influence factors are often introduced to the market for price manipulations. It is one of the favorite instruments used in the pursuit of easy money by so called pumpers (a group of people who conspire to act en masse and in a certain way for the sharp rise of the exchange rates, or to “pump” the price to “dump” it later).

Yet media and influencers – are those who perfectly know how to play on bitcoin and other cryptocurrencies investors emotions, using investors fear of missing out the profit. As a result, the crowd, warmed up by the purposefully inserted in media positive news, could in flow start to buy BTC. That, in turn, can affect the rate (growth in demand often generates an increase in value).

Crack Bitcoin, or how to predict the movement of the BTC price

As in the traditional assets market, in the world of cryptocurrencies a lot depends on the fundamental indicators (features of the cryptocurrency, the demand level and so on). But real life has repeatedly proven that success comes to those who rely not only on analytics and expert opinions.

Additional sources of information to be constantly monitored:

  • News – not only local, but also global news, and in all spheres. As you remember, even a randomly thrown phrase about blockchain from the “powerful few” can instantly skyrocket the price, or reduce the price by several points.
  • The cryptocommunity general mood. If the forums buzzing over upcoming rise of bitcoin, it is once again worth to study all the news and personally analyze the graphs. You may be missing something important or is it an echo of another information “stuffing” designed to affect the asset prices. In any case, be always alert.
  • Follow the movement of funds on accounts of whales (owners of the largest BTC wallets; among which there is the Bitcoin Satoshi Nakamoto, holding more than 1 million BTC)
  • Of course, most of the whales are «dark horses». Yet some large cryptowallets have been revealed a long time ago. The community relentlessly monitors any movements on them, especially on large ones. Such attention is reasonable – even one large whale can in just one day both raise the market and push all indicators off a high cliff, selling a significant part of its portfolio.
  • If you understand trading and analytics, do not neglect traditional technical analysis. For everyone else, including newbies, the market has been already offering professional programs for quite some time. Most of them costs, but they can help to predict in advance the price movement tunnel, and this approximate knowledge of future price movements presents an additional opportunity to save large sums or increase profit.

And most importantly, relying on your intuition, news or expert advice, never forget to be cautious. Success comes to those who constantly updates their knowledge base, analyzes and approaches the investment with a “cool head”. This being said, the probability of being in the right place and at the right time still exists, but this is a whole new discussion.

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