What makes bitcoin go up

Thus, the supply of Bitcoin slowed from 6. Bitcoin halving events, which occur every four years, generally correspond to a significant bump in its prices because it means that the cryptocurrency's supply has been reduced. While Bitcoin is yet to find favor as a medium of exchange, it has attracted the attention of retail investors. The locus of Bitcoin's demand shifts based on economic and geopolitical considerations.

For example, China's citizens may have reportedly used the cryptocurrency to circumvent capital controls in Bitcoin has also become popular in countries with high inflation and devalued currencies, such as Venezuela.

It is also popular with criminals who use it to conduct transfer large sums of money for illicit activities. Finally, investor demand for the cryptocurrency has also risen with increased media coverage. All of this means that a shrinkage in supply has coupled with surge in demand, acting as fuel for bitcoin prices. Alternating periods of booms and busts have become a feature of the cryptocurrency ecosystem.

For example, a run up in bitcoin's prices in was succeeded by a prolonged winter. Just as for other commodities, the cost of production plays an important role in determining the price of bitcoin. According to research, bitcoin's price in crypto markets is closely related to its marginal cost of production. For bitcoin, the cost of production is roughly a sum of the direct fixed costs for infrastructure and electricity required to mine the cryptocurrency and an indirect cost related to the difficulty level of its algorithm.

Bitcoin mining consists of miners competing to solve a complex math problem — the first miner to do so wins a reward of newly-minted bitcoins and any transaction fees that have accumulated since the last block was found. Arriving at a solution to the problem requires brute force in the form of considerable processing power.

In monetary terms, this means that the miner will have to spend money on racking mining machines equipped with expensive processors. The bitcoin mining process also incurs costly electricity bills that, according to some estimates , account for between 90 to 95 percent of overall costs.

According to estimates by some sites, electricity consumption for the bitcoin mining process is equal to or more than that of entire countries. An indirect cost of bitcoin mining is the difficulty level of its algorithm. Though Bitcoin is the most well-known cryptocurrency, there are hundreds of other tokens vying for crypto investment dollars.

As of , Bitcoin dominates trading in cryptocurrency markets. But its dominance has waned over time. The main reason for this was an increase in awareness of and capabilities for alternate coins. Investors who see its potential in reinventing the rails of modern financial infrastructure have invested in ether, the cryptocurrency used as "gas" for transactions on its network.

On Oct. Even though it has siphoned away investment dollars from the Bitcoin ecosystem, competition has also attracted investors to the asset class. As a result, demand and awareness about cryptocurrencies has increased. As a flagbearer of sorts for the cryptocurrency ecosystem, Bitcoin has benefitted from the attention, and its prices have surged. Bitcoin was released in the aftermath of a financial crisis precipitated by the loosening of regulations in the derivatives market.

The cryptocurrency itself remains mostly unregulated and has garnered a reputation for its border- and regulation-free ecosystem. Bitcoin's regulatory status has its benefit and drawbacks. On the one hand, the absence of regulation means that it can be used freely across borders and that it is not subject to the same government-imposed controls as other currencies.

But it also means that Bitcoin use and trade can invite criminal consequences in most financial jurisdictions. The vast majority of institutional investors are still wary of putting their money into the asset class, resulting in less liquidity and more volatility for its ecosystem. El Salvador made Bitcoin legal tender on June 9, It is the first country to do so. The cryptocurrency can be used for any transaction where the business can accept it.

The U. The more governments around the world incorporate bitcoin into their economies and markets, the greater its chances of becoming a legitimate asset class for investment. Cryptocurrency investors and traders follow regulatory developments related to Bitcoin closely because it is an indicator of liquidity in crypto markets.

These developments exert pressure on its price because they affect its supply and demand. For example, China's moves to ban bitcoin trading and limit operations of bitcoin mining infrastructure affect the cryptocurrency's supply and demand.

Bitcoin's nascent ecosystem means that news developments have a direct impact on its price. These developments can be of various types. As mentioned earlier, regulatory news can move the cryptocurrency's prices substantially. Hard and soft forks , which alter the number of bitcoins in existence, can also change investor perception of the cryptocurrency. For example, the forking of Bitcoin's blockchain into Bitcoin Cash in August resulted in price volatility and spurred the valuation of both coins to new highs.

Bitcoin's governance policies, which are set by a group of core developers, also affect its price. Protocol modifications that alter the number of bitcoin in existence or philosophical disagreements between developers about the cryptocurrency's future direction are closely watched investor indicators. Furthermore, if a cryptocurrency is thinly traded on a small exchange, the spread the exchange takes may be too big for some investors.

If a cryptocurrency becomes listed on more exchanges, it can increase the number of investors willing and able to buy it, thus increasing demand. And, all else being equal, as demand increases, the price goes up. There are thousands of different cryptocurrencies in existence, with new projects and tokens launching every day. The barrier to entry is relatively low for new competitors, but creating a viable cryptocurrency also relies on building a network of users of that cryptocurrency.

A useful application on the blockchain can quickly build a network, especially if it improves upon a limitation of a competing application. If a new competitor gains momentum, it takes value from the existing competition, thus sending the price of the incumbent down as the new competitor's token sees its price move higher.

Cryptocurrency networks rarely abide by a static set of rules. Developers adapt projects based on the community that uses them. Some tokens — called governance tokens — give their holders a say in the future of a project, including how a token is mined or used.

In order to make any changes to the governance of a token, there needs to be consensus among stakeholders. For example, Ethereum is working to update its network from a proof-of-work system to a proof-of-stake system , effectively rendering much of the expensive mining equipment in data centers or people's basements useless. That will undoubtedly have an impact on the value of Ether. Generally speaking, investors like stable governance. Even if there are flaws in the way a cryptocurrency operates, investors prefer the devil they know to the devil they don't.

As such, stable governance where things are relatively hard to change can be of value by providing more stable pricing. On the other hand, the slow process of updating software to improve protocols can limit the upside of cryptocurrency values.

If an update would unlock value for cryptocurrency holders but takes months to execute, it hurts the current stakeholders. There's some confusion about who should regulate the exchange of cryptocurrencies. Both can't claim regulatory authority over cryptocurrency exchanges. A determining ruling could provide greater clarity and improve cryptocurrency values while opening the door for more widely traded crypto-related financial products. Regulation is required to allow for easier ways to trade cryptocurrency.

Products such as ETFs or futures contracts provide more access to cryptocurrency for investors, increasing its value.

Additionally, regulation could enable investors to take short positions or bet against the price of cryptocurrencies with futures contracts or options. That should produce better price discovery and reduce the volatility of cryptocurrency pricing.

Regulations could also negatively impact demand for cryptocurrency. If a governing body changes the rules to disfavor cryptocurrency investment or use, it could send the price of cryptocurrencies lower. If you understand the core principle of supply and demand behind what gives cryptocurrency value and the factors influencing them, you can make better cryptocurrency investment decisions. If you believe demand is going to increase for reasons X, Y, and Z and don't think supply will keep up, that cryptocurrency could be a good investment.

But be aware that governments still don't have best practices for regulating cryptocurrency, which makes it a particularly risky and volatile investment no matter what. Discounted offers are only available to new members. Stock Advisor will renew at the then current list price. Average returns of all recommendations since inception. Cost basis and return based on previous market day close. Forex Forex News. Currency Converter. Rate Story. Font Size Abc Small. Abc Medium.

Abc Large. ET Spotlight Special. The cryptocurrency market has continued to witness a boom despite the global pandemic wreaking havoc on all significant economies on the planet. Many crypto startups have emerged in the space during this pandemic to cater to the ever-increasing demand for Bitcoin and alike cryptocurrencies.

Read More News on bitcoin price cryptocurrency covid 19 cryptocurrencies market Cryptocurrency's Price bitcoin Bitcoin currency. Also, ETMarkets. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds. Subscribe to ETPrime. Browse Companies:.

Find this comment offensive? This will alert our moderators to take action Name Reason for reporting: Foul language Slanderous Inciting hatred against a certain community Others.

Your Reason has been Reported to the admin. Fill in your details: Will be displayed Will not be displayed Will be displayed. Share this Comment: Post to Twitter.