Cryptocurrencies should come with two labels – ‘excitement guaranteed’ and ‘handle with care’. Though no-one (even us, blockchain consulting pros) can be 100 percent sure about where Bitcoin is headed, it doesn’t hurt to know that there are certain factors that may influence its price. Here’s what to look for.
- A positive or negative economic outlook of given country. If the economic outlook is positive, people earn money and want to put some away for emergencies or future spending. They can decide to buy Bitcoins as an alternative investment method (especially when interest rates are on very low levels globally). Similarly, a slowing economy will impact people’s (and companies’) earnings and so influence their spending and investment options, potentially driving Bitcoin’s price down.
- Cash flow controls in some countries can trigger people’s willingness to diversify some of their assets and convert some of them to cryptocurrencies. Also, skyrocketing inflation in some countries triggers people’s willingness to switch to currencies that won’t suffer from hyperinflation.
- When the supply of the currency is decreasing and demand for it is steady (or increasing), there’s upwards pressure on the currency price. So when number of Bitcoins mined every 10 minutes is halved every 4 years, there is a strong possibility that this will trigger some price pressure.
- If the demand for Bitcoin tokens increases naturally. For example, if we have more merchants accepting Bitcoin as a means of payment, services using Bitcoin tokens as their core platform (eg notaries, smart contract platforms like Rootstock, remittance services), this will increase pressure on Bitcoin price to go up, as the supply of Bitcoins would be limited. I encourage you to read up on crypto payments.
- Successful ICO offerings can also make Bitcoin prices surge. People who like the investment prospects described in the given ICO whitepaper want to back the ICO, and if they don’t have any Bitcoins yet, they need to buy them. Recent multi-million ICO offerings have also demonstrated this.
- Block-size issue and the resulting congestion of unconfirmed transactions. If not resolved in timely manner, this can convince some of the Bitcoin users and advocates that Bitcoin isn’t well suited for regular payment usage. This can be due to overly long confirmation waiting times, or due to high transaction fees. In that scenario, they can migrate to other cryptocurrencies that don’t have those kinds of problems (eg Litecoin, which recently implemented segwit and which can offer Lightning Network implementation for off-line transactions based on it). This would drive Bitcoin price down.
- Possible or actual bugs discovered in Bitcoin protocol or in any of major Bitcoin client/server implementations can have a short-term impact on its price. The trustworthiness of the technology can be undermined, which can temporarily drive Bitcoin’s price down.
- Other non-monetary projects on top of Bitcoin. Even if they don’t require an extensive number of Bitcoin tokens to run, they can drive its price up, as the mood around the currency and positive press can influence it.
- Bitcoins confiscated by law enforcement agencies from illicit activities, when sold on the open market, can push the price down. So whenever any agency makes any public notice that they’re going to auction off the confiscated coins, it might temporarily also push market prices down.