6 Main Drivers of the Bitcoin Price

By July 31, 2021DeFi
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The rollercoaster that is the bitcoin price knows no limits: it hovers around the $40.000 mark, although the online giant Amazon denied a media report according to which the retailer would accept Bitcoin as a means of payment.
This time, it was not Elon Musk to cause the sharp price increase but a company like Amazon.

Overall, the Bitcoin rally is influenced by all kinds of rumors and other drivers that are not always obvious.

1) Influencer

The Dogefather — wikipedia.org

The best-known influencer when it comes to cryptocurrencies is and remains Elon Musk. His tweets often trigger buy or sell reactions. The Tesla CEO had recently stated that Tesla would probably accept Bitcoin as a means of payment again. In March, he had temporarily accepted the cryptocurrency for car purchases. In May, Musk again said goodbye to the idea, citing Bitcoin as too much of a burden on the environment.
However, Musk not only influences the Bitcoin price, but also other cryptocurrencies such as Dogecoin. He led Dogecoin to a real boom a few months ago and contributed to the fact that the currency was one of the most capitalized coins.

@ NicTrades — twitter.com

But Musk is not the only crypto influencer. Ethereum co-founder Vitalik Buterin and Bittorrent co-founder Justin Lee, for example, also have a major influence on the crypto community. Finally, there are also unemotional analysts, such as London-based Nicola Duke, whose statements weigh heavily in the crypto community.

2) Inflation

Even though the current rise in inflation is hurting the crypto sector rather than helping it, as risk assets are being priced out in anticipation of rising interest rates, one cannot ignore the social mood. While asset inflation has not affected many people in recent years, that is now changing as consumer prices soar and are now being felt at the counter. More than ever, people are becoming aware of how their monetary values are melting away year after year. Accordingly, the Bitcoin narrative of inflation protection continues to strengthen. More and more investors, especially conservative ones who have been reluctant, are likely to develop an ever-greater openness to cryptocurrencies in the coming weeks and months.

Bitcoin since 2020 — coinmarketcap.com

3) Mass Adoption

While some crypto enthusiasts may not understand this, the crypto market, especially when it comes to more advanced applications like staking or lending, is a mystery to most people. If more money will flow into the crypto market, then the offers have to become even simpler and more suitable for the masses.
However, this is exactly where things are also looking very promising. The last few weeks have seen some impressive fundings. For example, the stablecoin company Circle raised $440 million at the end of May, and Fireblocks just raised $310 million. In addition, Twitter founder Jack Dorsey’s company Square also announced in July that it was building wallet and DeFi applications that are expected to drive mass adoption. No other year has seen more funding of this magnitude for crypto companies — and we are still in the middle of 2021. The many billions of U.S. dollars currently being invested in crypto development will translate into better product offerings and increased attractiveness of the crypto sector in the coming months.

4) Crypto-Whales

Crypto whales have nothing to do with the largest animal in the world. This is the name given to individuals or institutions that hold a large number of Bitcoins. The English term “whales” applies to a Bitcoin wallet holding so much value that they have the potential to manipulate the currency’s price.

Key Facts:

The three largest bitcoin holdings comprise 7.18% of all bitcoin in circulation and represent a value of approximately $621 million in February 2021.¹

Bitcoin whales are like other majority asset holders: their movements have outsized impacts on the bitcoin market, either through increased volatility, decreased liquidity, or a combination of both.

The biggest bitcoin whales are Satoshi Nakamoto, the inventor of bitcoin, the Winklevoss twins, and venture capitalists like Tim Draper and Barry Silbert.²
— Bitcoin Whale, Investopedia.com

The simple signal of a whale can have a big effect on the price of a cryptocurrency. One of the reasons for bitcoin’s strong volatility is that comparatively few shareholders concentrate bitcoin shares on themselves.
These “whales” usually execute extremely large sell orders, which can lead to great volatility. This often triggers a chain reaction and causes cryptocurrencies to drop in price. This tactic is also known as a “sell wall” in technical jargon. With such buying and selling, the “whales” can manipulate the market. Since the crypto market is not subject to any regulations, they are free to do as they please.

Photo by Fábio Hanashiro on Unsplash

Of course, it also works the other way around: the whales buy a high amount of coins to artificially inflate the price of a cryptocurrency. This forces the bidders to increase the price as well. However, this mainly has an impact on smaller investors in the crypto world, who then fall into a Fomo (Fear of Missing Out) effect and usually buy more. This in turn increases the price of a cryptocurrency, from which the whales profit.

5) Authorities

Decisions by authorities repeatedly influence developments in the crypto world and also the price of Bitcoin and Co. For example, the ban on the Binance trading platform in several states in recent weeks. Founder Changpeng Zhao has now moved his platform to Singapore.
Regulators in China are also an important factor. There, they have been taking rigorous action against Bitcoin miners in recent months. In one province after another, they are closing mining farms. Without the Chinese miners, who do two-thirds of Bitcoin mining, the cryptocurrency is struggling. Miners are now looking for new places — such as the former Soviet state of Kazakhstan.
Switzerland, as a regulator, is currently showing itself to be rather open to Bitcoin and Co. and is trying to create framework conditions that should simplify trading in “digital assets.” These conditions also lead to numerous blockchain companies moving to the “Crypto Valley” near Zug. Ethereum was founded there, giving birth to the cryptocurrency Ether. Cardano also comes from Zug.

6) Banks

The investment bank Goldman Sachs wrote in a report a few weeks ago that Ethereum had a great chance of overtaking Bitcoin as a reserve currency.

The price of Ethereum rose significantly after that. This showed that statements by financial institutions can also have an impact on the price.
Since investment banks such as JP Morgan or Goldman Sachs have been working on cryptocurrency investments, many have become attentive because they also receive inquiries from institutional investors. Banks have long been hated by crypto supporters. After all, the currency was also meant to be a counter to the existing financial system after the 2008 crisis.

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