What factors influence the value of Bitcoin?

What factors influence the value of Bitcoin?

Bitcoin’s price has been rolling since the start of this year and has already gained over 150%, making it one the best performing asset in the world in these difficult times.

Being different from stocks and bonds, or fiat currencies, Bitcoin’s value is not influenced by economic growth rates, inflation rates or monetary policy actions.

However, the price of Bitcoin is affected by the following factors:

• Bitcoin Halving: Halving refers to the number of coins mined and rewards credited to miners for adding new transactions in the block cuts by half.
  
  It is the most important event of Bitcoin blockchain and happens every four years or 210,000 blocks. The latest one being executed on May 11th 2020 and is a pre-programmed event.
  
  It results in the reduced issue of new coins in the market, thus making the scarce asset scarcer and an increase in the value of each coin.

The above chart shows the price activity in Bitcoin around every halving event (2012, 2016, 2020).

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• Market Demand and Supply: Bitcoin is based on the principles of a free-market economy, meaning, an economic system where the price is determined by demand and supply scenarios with no external control.

With an increasing percentage of Bitcoins held for a longer time by investors, it is resulting in a drop in supply and sending prices higher.

• User Adoption: Price of any asset is also affected by its popularity and its acceptance as a medium of exchange. For example, USD is valued more than any fiat currency is because it is used widely in trade settlement and is also the world’s reserve currency.
  
  Similarly, accelerated mainstream adoption of cryptos will also influence the price of Bitcoin in the coming months.
• Regulations: Regulations are another factor that can influence the price of Bitcoin as it can impact the user adoption rate and its effectiveness as a medium of exchange.
  
  For example, how the Supreme Court’s verdict on lifting the ban on crypto exchanges in India led to a surge in investors in cryptos in India. Similarly, allowing creation and trading in Bitcoin ETF will also influence the price of each Bitcoin.

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