Analysis of BTC price fluctuations and future trends

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Cryptocurrency trading has picked up in recent years with multiple new digital currencies being launched and the perception of crypto wallets as safe crypto storage gradually picking up pace. In this regard, price movements of cryptocurrencies gain more importance as investors look to hedge their positions or “time the market” to generate returns. Bitcoin, being the flagship crypto currency, provides an interesting case study in analysing its multiple price fluctuations over the last decade and the potential price trends going forward.

Factors Influencing Early Bitcoin Trades

The factors which impacted Bitcoin prices in its early trading days are described as follows:

  • Less liquidity – Trading in Bitcoin and other cryptocurrencies was in its infancy at the start of the 2010s. Due to a lesser number of buyers and sellers, the traded volume was low and this made prices susceptible to external events. Some of these events are profit booking, negative regulatory announcements, ban on crypto exchanges etc. and these caused extreme price downturns of Bitcoin.
  • Acceptance by retailers – As the acceptability of Bitcoin began to increase globally, its price reflected the positive sentiment. For instance, when a retailer announced that it would begin accepting Bitcoin for purchases, there would be a sharp uptick in Bitcoin price and this reflected inherent asset volatility.

Factors Influencing Current Bitcoin Prices

The factors which have affected Bitcoin prices in recent years are analysed as follows:

  • Institutional investors – Recently, Bitcoin has become more popular with institutional investors as a potential hedge against inflation. It has also been used for corporate treasury management at organizations and this has led to a gradual increase in its price.
  • Industry developments – With the cryptocurrency market gradually maturing, industry announcements are having a substantial effect on Bitcoin price. An example is the decision to trade Bitcoin futures at the Chicago Mercantile Exchange which elevated its price in 2017. Bitcoin halving announcements have also led to sudden price increases as it increases the asset’s stock-to-flow ratio which makes Bitcoin more valuable.
  • Economic instability – Bitcoin has looked to establish itself as a hedge against fiat currencies controlled by national governments and against government policies which lead to inflation, negative growth, cash shortage etc. An example is Venezuela where, after fiat currency hyperinflation, economic activity on Bitcoin increased manifold as a means of transactions and a way to store wealth.

Impact of COVID-19 Pandemic

At the start of 2020, the price of Bitcoin was $7200 as it had been adversely impacted by market volatility in 2019. However, the onset of the COVID-19 pandemic led to macroeconomic instability and subsequent government policies gave rise to fears on the state of the global economy. The price of Bitcoin began to rise as a result, and the recovery of financial markets from the lows of March – April 2020 only accelerated the steep rise in Bitcoin price. As world governments began to print more money to provide stimulus to faltering economies, Bitcoin’s capped supply was highlighted as a hedge against inflation. Though there have been price corrections over the last 1.5 years, the Bitcoin price trend has been upwards and it culminated in an all-time high of $66,974.77 on October 20, 2021.

Bitcoin Price Outlook

It has been speculated that a few cryptocurrency holders own a large portion of available Bitcoin supply. These large holders are referred to as “whales” and they are rumoured to own up to 92% of available Bitcoin in anonymous accounts. Hence, it is difficult to measure future price trends of Bitcoin as transactions by “whales” may have outsized impacts on the cryptocurrency market. However, based on recent price movements and industry acceptance of Bitcoin, it can be expected that Bitcoin price will move upwards with periodic market corrections. The rate of increase cannot be predicted with complete accuracy due to highly volatile market indicators, however it can be safe to assume that Bitcoin has proved its worth over a long duration and its attractiveness as an investment can only increase from this point.

The Final Word

There are multiple factors which have the potential to influence Bitcoin prices in either direction. Based on its price history, though there has been substantial volatility marked by peaks and troughs, it is anticipated that Bitcoin will continue rewarding its investors in the long run as a result of growing investor interest and positive market outlook. The cryptocurrency market will keep expanding and secure cold wallet collectibles for Bitcoin are likely to become popular in the near future. So, if you have been waiting to hop on to the Bitcoin bandwagon, there is no better time than now!