Bitcoin price meanders near its low, apparently acquainting itself with long-term support. Chart technicals to one side today, as we consider the question “Do fundamentals drive price?”
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Time of analysis: 14h00 UTC Bitstamp 1-Week Candle Chart
Today’s article considers the bitcoin price chart in context of similar speculative markets. The discussion focusses on the notion of fundamentals. The term fundamentals is used in its broadest sense, and not in the strict investment definition that refers to company balance sheets, work in progress, and so on. Although there are parallels between the bitcoin price market and other commodity markets, as briefly explored below, it is not being implied that their broad fundamentals are identical – of course, there are idiosyncrasies – especially with Bitcoin. The discussion will show that there are similar investment and trading psychologies at work.
Many bitcoin holders are wondering how bitcoin price could possibly be declining despite strong protocol fundamentals, surging interest, and a pending supply deflation. Surely, these factors should lead investors to accumulate, or at least hold, bitcoin in anticipation of an imminent rally? Consider that the bulk of daily bitcoin exchange volume is not necessarily transacted by long-term investors, and that forces unrelated to market fundamentals can, and do, motivate a large section of market participants’ decisions.
It is a widely held belief that fundamentals drive market prices. OPEC imposes a multi-month output quota and the reasonable assumption is that, with demand for oil remaining constant, reduced supply will cause the price of oil to rise. Or the Fed implements a program of quantitative easing, as they did in 2008, and […]
