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What are the Factors that Affect the Price of Bitcoin?

12 Oct 2020

Bitcoin (BTC) is the first cryptocurrency to be met with widespread success. Launched in 2009 by the mysterious Satoshi, it has taken the financial world by storm, launching cryptocurrency to the mainstream. Bitcoin is a great investment. It’s been touted as a safe haven asset and its value has only gone up since its inception. As with any investment though, there are many factors that can affect the price of Bitcoin. While volatile, the value of Bitcoin can be predicted to a certain extent. Here, we list some of the factors that affect the price of Bitcoin.

  • The Number of Bitcoins that are Available to Mine: 
    The primary way in which people obtain Bitcoin is through mining. After a miner processes a set amount of transactions, they receive a reward in the form of Bitcoins. The number of Bitcoin to ever exist is capped at 21 million, and thus it remains scarce and therefore valuable. Currently, 17 million of the 21milloin have been mined, leaving only 4 million to be mined. Bitcoin halving further adds to the value of Bitcoin. After every halving, miners are given half the bitcoin before halving, there are lesser BTC in circulation. This drives up the price of one BTC.

  • When a Bitcoin Halving Occurs:
     Bitcoin is imbedded with a technology that “halves” the reward given to Bitcoin miners for processing transactions. This happens every 210,000 blocks mined, or about every four years. This process is called Bitcoin halving. Bitcoin started out in 2009 by rewarding miners 50 Bitcoins for each chain mined. On the first halving event, this was reduced to 25, and then 12.5 on the one after. Currently it’s at 6.25. Whenever the Bitcoin halving occurs the price of 1 BTC skyrocket. Because this makes it harder for miners to get Bitcoins, it makes them more valuable. Experts expected that the price of Bitcoin would be close to $400,000 USD per Bitcoin in 2030.

  • The Amount of Exposure it Gets:
    In 2017, Bitcoin rose to an astounding $20,000 USD per Bitcoin. This gained a huge traction in the media. With the amount of exposure that this event got, many people started mining BTC themselves. While this may have seemed good at the time, it, in fact flooded the market. This eventually led to the price of Bitcoin plummeting. It has since recovered and is currently selling for around $15,000 USD.
  • The Technology that is Used:
    To mine Bitcoin, a Graphics processing Unit (GPU) or graphics card is needed. To get to the maximum potential of "finding" Bitcoins, you need a mid-tier to high end GPU. Mining Bitcoin takes a lot of processing power so it is essential to have a one that can withstand the process. A decent GPU is a significant investment – it may sell for around $800. During the boom period in 2017, many of the top and mid-tier GPUs sold out due to people’s enthusiasm to start mining. This caused a big backlash - anyone who wanted a GPU for other purposes was out of luck and had to wait until more were produced. As GPU technology gets better and more affordable, there will be an increase in the number of Bitcoins mined. Since there is only a finite amount of Bitcoin that exists which is capped at 21 million, the next few years will see a rise in the demand for Bitcoin.

The value and prices of Bitcoin are volatile, no doubt. But there are certain trends that are constantly present in how the prices changes. Bitcoin is a great investment because it is seen as a safe-haven asset, and patterns emerging may shine a light on when to invest and when not to. Over the next 10 years, it is expected to increase dramatically in value. This prediction is another factor that will help drive the price of Bitcoin up as many people will want to jump on this investment opportunity sooner rather than later.

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