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In 2009, the Bitcoin network went live and the world changed forever. The first cryptocurrency started out with a value of $0, and it took years before bitcoins gained value in terms of any national fiat currency. But at the time of writing in late September 2021, the value of Bitcoin had risen to over $47,000, after beginning at $0 just twelve years earlier.

There are a number of factors that drive Bitcoin’s prices — including its sudden price surges and steep drops. Here are 11 factors.

1. Supply and Demand

Part of what determines Bitcoin price is supply and demand. The Bitcoin protocol is designed to limit the supply of new coins. A new block of transactions is mined about every 10 minutes, and miners receive a set reward of new bitcoins for finding each block.

This reward amount is steadily reduced overtime and there are only 21 million bitcoins that can ever be mined. As of June 2021, about 18.74 million bitcoins had been mined, leaving 2.26 million bitcoins remaining. It’s estimated that the final bitcoin will be mined sometime around the year 2140.

On the other hand, the fiat currencies that prices are measured in have no supply cap and are always being created in ever-increasing amounts. This can result in more fiat currencies chasing fewer bitcoins, which can lead to higher Bitcoin prices.

2. Bitcoin Halving

Halving is part of the Bitcoin protocol that contributes to the supply and demand dynamics. Rather than new bitcoins being created at a steady or ever-increasing rate, the reward that miners receive for mining new blocks gets cut by 50% every 4 years or so.

In 2009, the block reward was 50 bitcoins. Over the next 11 years, the reward was “halved” three times, or reduced as follows:

•   2012: 25 bitcoins

•   2016: 12.5 bitcoins

•   2020: 6.25 bitcoins

In this way, Bitcoin remains a deflationary currency thanks to the process of Bitcoin mining. Fiat currencies, being inflationary, work in the opposite manner. Their supply increases each year with no limit on how many currency units can be created.

3. Monetary Policy

Because Bitcoin has a fixed supply limit, the price tends to correlate with the supply of new fiat currency being created. An increase in the money supply can be part of what drives up Bitcoin’s price. However, this isn’t a hard and fast rule — and past performance doesn’t always indicate future results.

It is worth noting that throughout 2020 and early 2021, the money supply in the U.S. saw massive increases to the tune of trillions and trillions of new dollars being created. During this same period, the price of Bitcoin rose from under $4,000 in March 2020 to over $60,000 in April 2021. When it comes to questions of what affects the Bitcoin price, monetary policy is thought to be a key factor.

4. Regulatory Factors

Regulatory news can also affect Bitcoin price. Some people believe that national governments will one day create such strict crypto regulations around Bitcoin and companies that use it that the technology will not survive. Because of this fear, sometimes it only takes a simple statement from a regulatory agency to cause prices to tank.

At the same time, some regulation can also be seen as a positive sign. It signals that the technology is seeing increased adoption and becoming more and more accepted. So, when regulatory agencies respond favorably to Bitcoin or announce new regulations that seem benevolent, this can be part of what makes Bitcoin go up.

5. Memes and Social Media

While technical matters and serious issues can contribute to what drives the Bitcoin price, more light-hearted factors can also influence what makes Bitcoin go up or down. Memes circulating on social media can sway sentiment toward crypto markets and possibly impact prices.

Recommended: How to Use Social Media for Investing Tips: The Smart Way

6. Mainstream Media

In addition to social media, the regular news cycle can also influence Bitcoin price. Almost every time Bitcoin suffers a price correction, numerous mainstream media outlets begin publishing negative news.

Some of these can be so pessimistic that they fall into the category of what’s become known as “Bitcoin obituaries,” where a media outlet proclaims that Bitcoin has died. Sometimes influential politicians, bankers, or bureaucrats make negative statements about Bitcoin too, leading to similar effects on price.

On the other hand, when overall media coverage is positive, this can make the price of Bitcoin go up. In 2020 and 2021, news about influential investors making bets on Bitcoin were seen as significant factors with regard to what makes Bitcoin go up, as well as a factor in Bitcoin’s volatility.

7. Miners

In Bitcoin mining, powerful computers process transactions for the network, keeping Bitcoin running in a decentralized way. Mining operations continue running, at least in part, with funding from the bitcoins that they mine.

But miners have to be very careful about what they do with their new bitcoins. If miners believe the price of Bitcoin will go up in the future, they are likely to hold their coins for some time. If miners believe prices will go down soon, they might sell their coins immediately.

Miners refusing to sell new coins can be part of what makes Bitcoin go up, as new supply never makes it to crypto exchanges where it could drive prices down.

Recommended: What are Bitcoin Mining Pools? Should You Join One?

8. Hash Rate

The Bitcoin hash rate is one of the most important metrics in Bitcoin. The hash rate indicates how hard miners are working to solve the mathematical problems needed to process transactions. The more miners that are contributing computing power, the higher the hash rate.

While there’s disagreement about whether or not hash rate is part of what affects the price of Bitcoin, there does appear to at least be some correlation. If nothing else, a higher hash rate makes the network more secure and signals confidence in the near-term.

Recommended: What is a Good Hash Rate?

9. Network Adoption

Bitcoin is the world’s first decentralized monetary network. The more people using the network, the more valuable it tends to become. (This same principle holds true for things like social media networks, too.)

When it comes to the Bitcoin network, one of the main metrics used to measure adoption is the number of new crypto wallets being created. New wallets indicate that more people are using Bitcoin, some of them presumably for the first time. Sometimes when a lot of new wallets are coming online, this can be a sign of confidence in the technology and be part of what makes Bitcoin go up.

10. Risk Appetite

General sentiment in financial markets can be part of what makes Bitcoin go up. When investors feel comfortable taking on more risk than usual, they could be more likely to put money into Bitcoin.

On the other hand, some Bitcoin proponents believe Bitcoin to be more of a safe haven asset (the opposite of a risk asset). Bitcoin has a limited supply.

11. Technical Analysis

Crypto technical analysis can influence the price action of almost any tradeable asset. TA involves patterns identified by computer-generated data and from human eyes identifying patterns on charts. When a certain pattern emerges, it’s thought that prices could be about to move upward or downward, depending on the type of technical setup.

The Takeaway

When it comes to what makes Bitcoin go up, there are at least a dozen potential factors. Many of them are related to market sentiment, the status of the Bitcoin network, and supply-and-demand dynamics.

Photo credit: iStock/cokada

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Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

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