When people ask, “what’s driving the price of Bitcoin?”, the truthful answer is that we know all of the factors which are driving it. It’s just difficult to pin down how much weight to attach to each of those factors. And the fact that its price is so volatile points to an asset which market traders haven’t established a price they’re content with yet.
Having said all that, what factors affect the price? Let’s look at what we believe to be the four biggest drivers of the world’s fastest moving asset in terms of price:
Regulation is probably more responsible for swings in Bitcoin prices than any other factor. When China shut down several Bitcoin exchanges and banned ICOs, the price of Bitcoin dropped nearly 30% overnight. By the same token, when Japan announced that Bitcoin would be viewed as legal tender, the Bitcoin price spiked.
Lack of Transparency
The secrecy around Bitcoin is one of the reasons why it’s so popular but on the other side of the coin (no pun intended), that same lack of transparency makes many investors nervous. The transparency issues around Bitcoin in particular revolve around its governance and what their intentions are for Bitcoin down the road.
Call it what you will – irrational exuberance, feedback loops, animal spirits, herd behavior – nobody can deny that there’s an element of investors looking around to see what all the other investors are doing where Bitcoin is concerned. This is a feature of new assets – think of the dot com bubble – where investors are still trying to get to terms with what’s happening.
We leave the biggest factor until last: Demand. You’ve probably had the Bitcoin conversation with ten different people at this stage and at least one of them has already invested in Bitcoin, pushing up the demand and raising the price. While there’s certainly a lot of noise on the market being driven by this demand, it should be welcomed: together, they’ll drive it towards a mature, efficient market which is where Bitcoin deserves to be.