The price of Bitcoin is perhaps the most popular request by the users of digital assets and cryptocurrency in general. In this article, we will discuss the aspects that determine the price of Bitcoin, and we will cover why Bitcoin is going up and down.
Bitcoin Price Fluctuations: Brief Crypto Review
The price of Bitcoin is determined by the last crypto transaction made on a particular exchange. The price rises when the pressure to purchase goes up and falls when the pressure to sell goes up.
Some aspects and key factors that determine the price of Bitcoin in the crypto market are as per the following:
- Media extravagant claims and FUD;
- The decrease in the popularity of fiat currencies due to loss of trust;
- Institutional adoption and lack of supply in stock;
- Dumping of money on the market.
Basically, that is all about the impact of certain aspects on the price of Bitcoin. If you want to learn more about the key determinants of the BTC price, make sure to read the whole article. Today we will cover:
- What is Bitcoin’s price in general;
- What are the determining factors of BTC price;
- Why is Bitcoin going up and down;
- Final Words;
What is the Price of Bitcoin?
Generally speaking, the price of Bitcoin is usually referred to as the dollar price on some leading crypto exchange platforms, for instance, Bitfinex, Binance, or Bitstamp (one can gain access to such websites via Web, one can register an account or accounts (for several people) here). Bitcoin price is also known as the complex price obtained from the mean value of various prices in different exchanges, for instance, CoinGecko.
If you hear someone talking about the price on some particular exchange, this implies they talk about the price of the latest (cash to cryptocurrency) transaction made on a particular exchange.
In this way, in case the price of Bitcoin on such a platform as Bitstamp is 10 thousand dollars, this indicates that the latest trade on Bitstamp was closed at 10 thousand dollars. The price will be updated when a new transaction will be made.
Since Bitcoin is a decentralized asset that is traded on many exchanges and among a huge amount of people worldwide, there is not really any single Bitcoin price. The thing is that every exchange has its price for Bitcoin; nonetheless, the prices are quite similar in general.
Each exchange has its own Bitcoin price, although these prices are usually quite similar. This is beneficial for experienced traders (and their ample funds) and their arbitrage opportunities. We will explain the case letter.
As we already concluded, there is no united price for Bitcoin. So, in this way, some companies made a complex composite index price for this case. The price can be counted as follows: the average weight of the prices of multiple major currencies by volume.
For instance, the Coindesk Bitcoin price index will show one the mean of Bitcoin prices among all of the major worldwide exchanges that meet certain criteria. The indexes like this can be efficient pricing mechanisms because they smooth out the impact of any suspicious trading action on a single trade platform.
For instance, imagine we have a huge trader that wants to sell 25 thousand BTC on such a platform as Bitfinex (once you can get access to it using Web and make accounts for anybody). The price will be drastically decreased on this exchange, and it will take some time to return to the worldwide mean price. The price of the index will represent less of this localized change during the whole time span of the situation.
What are the Determinants of the Price of Bitcoin?
Price discovery is the event when purchasers and sellers get together in some exchange to arrange an agreement on the trading price. Of course, the purchasers want to pay a small amount of cash for their BTC coins. On the other hand, the sellers strive to trade such cryptocurrency as Bitcoin for a high price, so it would be beneficial for them. This means that they have to agree on a certain price before the trading process itself. As we already learned, the current BTC price is just the latest trade price on any exchange platform.
Now, we will have to dig deeper into the details of the agreement process of the purchaser of the BTC and the seller.
1. The Order Book
Order Book is the name for the exchange interface of any regular crypto trading platform. Of course, the ORder book has nothing to do with simple paper books; instead, they depict the reference page for market data that is connected to the accomplishment of purchase and sell orders.
The buy-side of the book is related to all current options and offers to buy BTC for some particular price, and they have also referred to as ‘bids.’ The sell-side of the Order Book has all of the offers to sell BTC, they are called ‘asks,’ respectively. Recent trades (‘Buy Bitcoin and sell Bitcoin’) are depicted as a list and (or) some graphic plot.
Asks are regularly placed on the top right, and they represent the price that the seller strives to get for their coins, as well as the amount of coin money they want to sell. Some other Asks can be found in the Order Book of the Bitstamp; nonetheless, only several of them are visible. To be precise, the ones with the most recent price. Below one can find the closest bids. It depicts the price and the number of coins desired by those who buy such cryptocurrency as Bitcoin.
The bottom side of the page is dedicated to the chronicles of the crypto trade. It displays the number of coins that were traded and at what price. The most recent transaction is the one that sets the most recent price. This recent price reflects the nowadays value of BTC on some trading platforms. So, it basically shows the current price of the BTC. As already mentioned, it will be changed once the trading process goes on.
2. Who are they: Makers and Takers
The Bitcoin cryptocurrency Price movements are explained as more purchasers than the sellers or vice versa. To be honest, it is not true because two parties are always in demand for the deal. It is simple: if someone bought BTC, then someone else sold it!
The pushing factor that makes the value increase or decrease is the side that’s more aggressive in ‘crossing the spread.’ The delta between the best bid and the best ask price is exactly the spread.
Let us recall the example with Bitstamp. The best bid (also known as purchasing price) is 9350 dollars, and the best ask (the selling price) is 9400 dollars, which makes the spread worth fifty dollars.
The side that is more motivated to make a cryptocurrency deal will pay these fifty dollars spread costs to perform the trade instantly. The paying side is also called ‘the taker’ because this side, basically, takes the offer mentioned in the Order Book by the ‘maker’ (the person who made up a trade). The data about what do you do more, take or make, will be depicted in your personal data tab in some crypto trading platform.
Imagine a scenario in which many buyers are sure that the price will be just over ten thousand dollars by Saturday. They act as takers. The ones who buy Bitcoin think that they will have a profit by purchasing below ten thousand dollars. So, in this case, they would want to pay the crypto spread to get all of the coins on offer at 9400 dollars. In other words, they would like to make six hundred dollars minutes fifty dollars spread.
And when the buyers have bought all of the coin money for the price of 9400, the next best ask is coins for 9450 dollars, then coins for 9500 dollars, then for 9550, and so forth, increasing the ask list, making payments.
In case the purchasing process is aggressive, the sellers would understand it and begin to increase the prices of their asks. This process will be ongoing until the purchasing pressure is off. Then, the process would be reversed. And in a huge timespan, these very changes make the price go up and down.
This fluctuating thing occurs in each of the BTC exchanges. Nonetheless, the prices are still somewhat similar. That is due to the process of BTC arbitrage. It is a dealing method that uses the difference in prices between trading platforms. For instance, if such a cryptocurrency as Bitcoin is affordable in Bitstamp but way too expensive on Coinbase, then the BTC will be bought on Bitstamp and sold on Coinbase. The effects of arbitrage are what holds prices somewhat similar on different crypto exchange platforms.
3. Major Exchanging Platforms
At last, we should discuss the impact of some major exchanges in the market.
To start with, the major leading exchanges with the biggest amount of coins traded are considered to be more valid. Due to that, everybody agrees that their cryptocurrency price is ‘official.’ For instance, if the price of the Bitcoin jumps in some huge crypto exchange platforms like Binance, Bitstamp, or Bitfinex, then almost all other exchanges will have higher prices too, especially if several major exchanges at once heighten the prices.
The logic behind this situation is obvious: most of the sellers and buyers tend to buy and sell on some leading platforms. Traders, for example, assume that prices on main exchanges will trickle down to secondary exchanges because of the impact of arbitrage influences and the belief that other sellers and buyers will take action accordingly. This main exchange effect happens even to some exchanges in which various cryptocurrencies are utilized.
Imagine a case when such a cryptocurrency as Bitcoin is being traded in a country where there are many cryptocurrency users: Japan. The Bitcoin in Japan is priced in JPY, of course. And if BTC starts to fall below the worldwide mean price, it is likely to also affect prices in US dollars, euros, and other markets as well.
Why Does Bitcoin Price Decrease?
Once we have covered what the BTC price is and how it is counted, we can move on to some other cases. For example, we should discuss why Bitcoin plunges.
The Price Is Close To The Highest Price Ever
Sometimes, when the price of the BTC gets to a value near the latest highest point of price, the price resistance happens, and, therefore, the price can not be higher than the previous high price. That is because many sellers put sell orders close to historical record high; as a result, when the price gets to the points, the sales pressure kicks in, and it leads to a downward bull market in price.
FUD is the abbreviature for Fear, Uncertainty, and Doubt. FUD in media sometimes can be seen in case Bitcoin experiences very negative press. There you can find some cases of how BTC was announced as a dead cryptocurrency just below 400 times over its history. The type of media FUD like this results in mass anxiety and increases the selling pressure because people start to no trust Bitcoin.
One has to acknowledge that the main goal of the media is to make some breaking news and sensations, so they do not really dig into research about Bitcoin and cryptocurrency in general, so they are not a good source of crypto data. My advice is not to accept the rumors and not sell Bitcoin. You should better wait until you find some reliable data and analysis!
Dumping Coins on the Market
As a rule of thumb, when a huge number of BTC coins are sold on the market, it puts the Bitcoin price down because the selling pressure goes up. In some situations, the FBI or various other governmental entities seize huge amounts of Bitcoin from criminal transactions and operations. And when such a scenario occurs, they tend to auction the coins to the public.
And as the government does not really want to maximize the profit and a large number of coins are auctioned, this results in BTC being sold below the price in regular exchanges. That is why Bitcoin drops, and the auction winner sells some of their new Bitcoin coins on other crypto exchange websites.
Why is Bitcoin Going Up?
Why Bitcoin is going up is the question that bothers all: institutional investors, crypto market users, regulators of the exchange platforms, sometimes even the government. Let us take a closer look at it.
1. Crossing the Highest Price
If such cryptocurrency as Bitcoin price goes over some highest value, sometimes we can observe a positive purchasing impulse, which further results in an upward bull market in the price. And when a very high buying impulse happens (the BTC starts to be overvalued), it is usually followed by a rapid plunge in price. This phenomenon is called a correction. So, in case you are into the buying impulse, make sure to maybe take some money off the table before this described situation occurs.
2. Hype in Media
That is very similar to FUD in media but in somewhat another manner. As well as FUD, it generates heightened buying pressure. Such a case was observed in 2017, in a great Bitcoin rally, when the price hit 20 thousand dollars. Bitcoin was discussed literally everywhere: in everyday (good) news, on crypto exchange platforms, in the audience insights. This resulted in adoption, interest, and speculation from the public.
The aphorism “buy the rumor, sell the news” means that when the media coverage begins, it’s time to be wary of the price, as a crypto correction may soon take place. In this way, while media hype and breaking news initially raise the price, it might also lead to its collapse if it rises rapidly.
3. Untrustable Fiat
Another case when cryptocurrency price begins to rise over time is connected with the loss of trust in traditional currencies, such as US dollars, euros, and so forth.
So, why is Bitcoin going up in this case? Once people lose their faith in fiat currency, their own fiat currency, it leads to inflation. So, the masses want to find some alternative source where they can store money, and that will not be controlled by governments or banks. And here comes such digital assets as cryptocurrencies, especially Bitcoin. But such asset as gold also suits! One of the examples of such a case is the Cyprus bail-in crisis in 2013, the demonetization in India in 2016, and the Peso decrease in 2019 in Argentina.
4. Why is Bitcoin Going up: Adoption
When some huge retailer or monetary entity starts utilizing BTC as a payment method, this indicates the popularity of Bitcoin. This might result in a price decline because of speculation about future mass adoption.
Another factor that will cause an upward bull market in the price is the approval of BTC financial tools, for instance, Bitcoin ETFs and Bitcoin futures. Such a monetary device as Bitcoin ETF permits, for example, huge institutions such as banks, hedge funds, and others to increase investment value in Bitcoin without purchasing the currency, basically. Some people also think that if the huge market investors consider Bitcoin as a reliable and legal investment, then in some time, the masses will start investing in Bitcoin either. This leads to an upward bull market in buying pressure.
5. Deficit of Supply
Another crucial factor we should take into account when talking about buying pressure is a deficit in supply. The Bitcoin supply is limited to 21 million. To date, more than 88 percent of these 21 million have already been extracted.
Nowadays, every 10 minutes overall, another 6.25 Bitcoins come into ‘life’; nonetheless, this number is decreased by 50 percent approximately every four years. Some people say that halving BTC will lead to an increase in the value of Bitcoin, as there will be a deficit in the supply of new coins. The following breaking down in half process will take place in May 2024.
The price of Bitcoins will remain going up and down for some time until crypto mainstream adoption will come into power. At the moment, large orders to buy or sell Bitcoin whales are disturbing the market, as the market capitalization is not large enough to counter them.
The nowadays situation with the instability of the monetary system might be another factor of Bitcoin’s rapid increase; nonetheless, no one knows if this will happen or not, there is no 100 percent insurance in the analysis of data.
What do you think about Bitcoin’s price? Do you think it will increase, plunge or remain at or level? Make sure to leave some comments to discuss the future scenario.
Why Does Bitcoin Changes in Price?
The volatility of the price of Bitcoin is remarkably high. We can observe the five percent or 10 percent fluctuations on a daily basis! The reason behind these big moves is that the market capitalization of BTC is somewhat small.
The formula is simple:
The market capitalization equals to Number of BTC coins in a market flow multiplied by Price per one BTC.
As a rule, the smaller the market capitalization of an asset, the more unstable it will be. Let us provide an example: one throws a stone into a small lake, and the effect is huge. The water goes very wavy. And now, grab the same rock and throw it into the ocean, and the effect will be insignificant in general. The same goes with BTC and market cap. The BTC is a small lake, and it is more affected by the everyday purchase or sale of the orders (stones). And when the price of Bitcoins goes up, the market cap and the price fluctuations will steadily decline.
Why are Bitcoin Prices Going up?
‘Why is Bitcoin going up?’ is a very searchable question in Google. There are multiple reasons for it: media hype, loss of trust in fiat currencies, World crisis, and so on. In case you would like to learn the details of such reasons, make sure to read the full article.
Will Bitcoins go up in 2021?
This is a very debatable question. In 2021, many people forecast the steady increase in Bitcoin value; nonetheless, no one knows for sure what will happen in the future. The nowadays world, government, Treasury, monetary institutions, investors, partners, the stock market are unstable. Bitcoin is very volatile. But every cryptocurrency and currency, in general, is volatile as well. All in all, market data suggests there will be a bullish increase.
What Determines the Price of 1 Bitcoin?
The main determinants in the price of Bitcoin are supply and demand. It also depends on crypto exchange websites in the worldwide situation. The other way to think about the price of Bitcoin is the price index, and it may be counted like this: the mean weight of the prices of multiple major currencies by volume.
What Happens to Bitcoin After All 21 Million Are Mined?
The available supply will be exhausted. Nevertheless, once all the Bitcoins are mined, the miners will still be involved in processing the crypto payment transactions. But the miners will no longer get the ability to receive awards and benefits since there is no coins generation and no transaction fees.
Will Bitcoin Keep Rising?
The question is ambiguous, as we should the rise/fall of Bitcoin for some time spans. Every year, five years, 10 years or so. There should be a thorough analysis of the current crypto market situation, but the interest of the public grows. More and more regular payment operators, such as Paypal, for instance, started accepting Bitcoin.
Overall, there is no 100% insurance that Bitcoin will rise, although it is a bullish forecast by many investors and investing data sources.
What is a Bubble?
A bursting bubble in the world of cryptocurrencies is the worst nightmare. The crypto bubble is the forecast of the collapse of Bitcoins and many other cryptocurrencies. Some people say Bitcoin is in a bubble as of now, some not. The time will show.