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What drives Bitcoin's price? 📈

Bitcoin, introduced to the world in 2009, has emerged as a disruptive force in the financial world, both dividing and captivating investors, governments, and people alike, globally.

Its decentralised nature, underpinned by blockchain technology has promise to revolutionise traditional financial systems. But what drives Bitcoin’s price? In this article, we’ll cover the various use cases of Bitcoin, and other factors potentially driving its growing value, appeal and price.

What are the use cases of Bitcoin?

Store of Value

Bitcoin is often likened to digital gold due to its scarcity and store-of-value properties. With a maximum supply capped at 21 million coins, Bitcoin's scarcity makes it resilient to inflationary pressures that impact fiat currencies. This characteristic has attracted investors seeking a hedge against economic uncertainty and currency devaluation. Institutional adoption, evidenced by companies like Tesla and Square adding Bitcoin to their balance sheets, further validates its status as a store of value.

Medium of Exchange

While Bitcoin's volatility has hindered its adoption for everyday transactions, Bitcoin still serves as an effective medium of exchange for cross-border payments and remittances. Bitcoin's borderless and permissionless nature enables fast and low-cost transactions without the need for intermediaries like traditional fiat currency transactions. Moreover, its pseudonymous transactions offer privacy benefits compared to traditional banking systems, appealing to individuals seeking financial autonomy and privacy.

Financial Inclusion

Bitcoin plays a growing role in promoting financial inclusion by providing access to banking services for the unbanked and underbanked populations around the world. With internet access, individuals can participate in the global economy and store value securely without relying on traditional financial institutions. Like with other cryptocurrencies, this aspect of Bitcoin empowers marginalised communities and facilitates economic participation on a global scale.

What factors impact Bitcoin's price?

Supply and Demand Dynamics

Bitcoin's value is influenced by supply and demand dynamics. With a capped supply of 21 million coins, increasing institutional interest and adoption have driven up demand for Bitcoin, leading to price appreciation. Additionally, the recent launch of Bitcoin exchange-traded funds (ETFs) and the rise of crypto investing apps have provided traditional investors with easier access to Bitcoin, further boosting demand.

Market Sentiment

Market sentiment plays a significant role in Bitcoin's price movements. Positive news and developments, such as regulatory clarity, institutional adoption, and mainstream acceptance, tend to bolster confidence in Bitcoin's long-term prospects, leading to upward price momentum. Conversely, negative events or regulatory uncertainty can trigger sell-offs and price volatility.

Regulatory Developments

Regulatory developments and government policies regarding Bitcoin can impact its value. Clear and favourable regulations can boost investor confidence and suggest a path toward mainstream adoption, while regulatory uncertainty or restrictive measures may dampen sentiment and hinder Bitcoin's growth trajectory and price.

Macroeconomic Factors:

Bitcoin's value is also influenced by broader macroeconomic trends, including geopolitical tensions, monetary policy decisions, and inflation concerns. As a decentralised asset, Bitcoin is often seen as a hedge against traditional fiat currencies and inflationary pressures, particularly in times of economic uncertainty or currency depreciation. As a result, Bitcoin’s price tends to rise when traditional markets fall, reflecting increased demand for non-correlated assets. Conversely, when traditional markets experience stability or bullish trends, investor interest in Bitcoin may wane as the appetite for other investment assets increases. However, this relationship isn't always this straightforward, as Bitcoin's price dynamics are influenced by a complex interplay of factors.

Bitcoin's price is influenced by a range of factors. As Bitcoin continues to evolve, understanding the complex web of factors driving its price remains essential for investors seeking to navigate the volatile yet promising landscape of cryptocurrency markets.

How much do I need to get started investing in Bitcoin?

​Almost all crypto platforms have a minimum amount you can invest. This is the lowest amount of money an investor can add to their account, and use to buy things like Bitcoin. In the UK, this generally ranges anywhere between £10-£50, but can be more with certain providers. We've created a comparison of crypto platforms and their minimum deposits, so you can find this information easily in one place.

Want to learn more?

Interested in investing but don’t know exactly where to start? Try the free Pluto app. Learn investing basics, and practise in a risk free environment with no real money. Find us on the Apple App Store.

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