Reasons for Bitcoin's Rise and Fall — Top 10 Factors Affecting Bitcoin Price

“Bitcoin is up again!” “How did Bitcoin suddenly crash?”

This is the most commonly heard sigh in the cryptocurrency market. Bitcoin's price volatility often leaves investors without a hitch — why is it the same asset that Bitcoin can go up 10% in a day or 20% in a day? NEITHER STOCKS NOR GOLD HAVE SUCH EXAGGERATED VOLATILITY.

Bitcoin's rise and fall is not without a trace. While short-term prices are difficult to predict, the factors that affect Bitcoin prices are traceable. Understanding these factors will not only help you invest more rationally, but also avoid being carried away by market sentiment.

This article takes a deep look at the top 10 key factors that affect Bitcoin prices, from fundamental supply relations, to market sentiment swings, to external policy regulation, to give you a complete understanding of the logic behind Bitcoin's rise and fall.

First, the supply and demand relationship: the fundamental aspect of determining the price of Bitcoin

Bitcoin's scarcity

Bitcoin's most fundamental source of value isScarcity。

Core Data:

• Total Bitcoin: 2,100 million (never increased)
• Excavated: Approximately 1,950 million pieces (2026)
• Remaining Excavable: Approximately 150 million
• Excavation expected in 2140

Supply Characteristics:

• Generate a new block every 10 minutes
• Reward per block is currently 3.125 BTC (halved in 2024)
• Half Off Every 4 Years
• The speed of supply gradually decreases

How does the law of supply and demand affect prices?

Increased demand+fixed supply = increased prices

CASE 1:2020 TO 2021 BULL MARKET

• Institutional investors buy in bulk (Tesla, microstrategies)
• Retail FOMO Sentiment Surges
• Supply cannot increase rapidly
• Result: Bitcoin rises from $10,000 to $69,000

Decrease in demand+continuous supply = falling prices

CASE 2: BEAR MARKET IN 2022

• FTX, Luna, etc., reinvigorate confidence
• Investors panic sell-off
• Miners keep producing Bitcoin
• Result: Bitcoin fell from $48,000 to $15,500

HALVE THE IMPACT OF EVENTS

What is Half Off?

Every 21,000 blocks (about 4 years), Bitcoin's block rewards are reduced by half.

Historical Half Off & Price:

Why does a half discount affect the price?

• Half Reduced Supply Speed
• Increase in Miners' Costs
• Historical Formation of “Half Reduction = Increase” Expectations
• PROPHECY EFFECT OF SELF-FULFILLMENT

Conclusion: Halving usually promotes bull markets after 6 to 18 months.

Second, market sentiment: the tug-of-war of FOMO and FUD

FOMO (Fear of Missing Out) - Fear of missing out

What is FOMO?

When Bitcoin starts to rise, investors are afraid of missing out on the opportunity to make money and go crazy buying, pushing the price higher further.

Typical characteristics of FOMO:

• “Bitcoin Innovation High” is widely reported by the news media
• Social media is full of 'wealth freedom' stories
• Sole owner account opening
• Trade volume increased
• Each callback is considered a “pick-up opportunity”

Case: April 2021

• Bitcoin Breaks $60,000
• Musk Frequent Promotion Support
• Coinbase listing sparks concern
• Shopper Madness Influx
• Price jumps from $60,000 to $64,000 in one month

Questions about FOMO:

• Frequently buying at high points
• Lack of rational analysis
• Easy to panic sell

FUD (Fear, Uncertainty, Doubt) - Fear, Uncertainty, Doubt

What is FUD?

Negative news or rumors cause panic, and investors are afraid of losses and sell, causing prices to plummet.

Typical sources of FUD:

• Government Prohibition or Regulatory Notices
• Exchanges are closed or hacked
• Famous People Sing
• Macroeconomic recession

Case 1: China ban in May 2021

• China announces ban on Bitcoin mining
• Market Panic
• BITCOIN TUMBLES FROM $58,000 TO $30,000
• A drop of nearly 50%

Case 2: FTX rollback in November 2022

• Bankruptcy of the world's second largest exchange
• Confidence breakdown
• Bitcoin Falls From $21,000 To $15,500
• Decrease 26%

Features of FUD:

• Come fast, go fast.
• Short-term impact
• Limited long-term impact (if the fundamentals remain unchanged)

Greed and Fear Index

Crypto Fear & Greed Index(Cryptocurrency Panic vs Greed Index) Quantifying Market Sentiment:

• 0～24: Extreme fear (usually a buying opportunity)
• 25～49: Fear
• 50～74: Greed
• 75～100: Extreme Greed (usually a sell signal)

Investment Wisdom:“Fear when others are greedy, greedy when others fear.” — Buffet

Third, the influence of institutional investors

Institutional purchases drive prices

Institutional Admission Trends 2020-2021:

Grayscale:

• Keep buying Bitcoin
• Over 65 million BTC held in 2021
• Become one of the largest institutional holders

MicroStrategy:

• CEO Michael Saylor Big Promotions
• Accumulated purchases of over 15 million BTC
• Become a Listed Company Holding Bitcoin Benchmarks

Tesla:

• Purchased $15 billion worth of Bitcoin in February 2021
• Musk Promotion Support
• Bitcoin Surges 20% After Announcement

Impact:

• Large size of institutional funds and strong motivation
• Enhance Bitcoin Legality
• Retail wind effect

Institutional sell-offs trigger declines

Case: Luna Foundation Liquidation in 2022

• Luna Foundation holds about 8 million BTC
• In order to stabilize UST, forced to sell
• Market panic intensifies
• Bitcoin Drops From $40,000 To $28,000

Impact:

• Large amount of pressure
• Liquidity Depletion
• Trigger a Chain Reaction

Fourth, policy regulation: the attitude of each country to decide on the direction

Positive regulation = price increase

Case 1: US Bitcoin ETF Passed (January 2024)

• SEC Approves Spot Bitcoin ETF
• Representing Bitcoin to be accepted by mainstream finance
• News announced that Bitcoin rose 5% on the day
• Continued increase to $73,000 thereafter

Case 2: El Salvador adopts Bitcoin as legal currency (September 2021)

• The world's first
• Although the impact is limited, the symbolic significance is significant
• Short-term driving price increases

Negative regulation = price drop

Case 1: China ban (May 2021)

• Banning Financial Institutions from Providing Cryptocurrency Services
• Bans Bitcoin Mining
• BITCOIN TUMBLES 50%

Case 2: US SEC Crackdown on Cryptocurrencies (2023)

• Sue Binance, Coinbase
• Market Worries Heighten
• Bitcoin is down 10～ 15% in the short term

Regulatory attitudes by country

Friendly Countries:

• El Salvador, Switzerland, Singapore, UAE
• Provide a clear regulatory framework
• Attracting companies to enter

Neutral or Observational:

• USA, EU, Japan
• Step-by-step creation of regulation
• Seeking Balance

Strict Restrictions:

• China, India (Once Upon a Time)
• Prohibited or severely restricted
• But the impact gradually decreases

V. Macroeconomic environment

Inflation and Monetary Policy

Inflation rises → Bitcoin rises

Logic:

• DEPRECIATION OF THE FRANC
• Investors Seek “Volatile” Assets
• Bitcoin Total Fixed, Considered “Digital Gold”

Case: 2020-2021

• Banknotes printed by countries during the pandemic
• Inflation Expected to Rise
• Bitcoin rises from $10,000 to $69,000

Rising → Bitcoin Falling

Logic:

• Higher interest rates increase borrowing costs
• Withdrawal of funds from risk assets
• Bitcoin as a high-risk asset

Case: 2022~2023

• US Federal Reserve to Raise Interest Rates
• From 0% Litre to 5.5%
• Bitcoin Falls From $48,000 To $15,500

Weak dollar

Dollar Weakens → Bitcoin Strengthens

• Depreciation of the US dollar
• Investors seeking alternative assets
• Bitcoin Benefit

Dollar Strengthens → Bitcoin Weakens

• The rise of the US dollar
• Capital flows back to US dollar assets
• Bitcoin stress

6. Technical factors

On-chain data

Number of active addresses:

• Increase = Increase in Utilization = Bullish
• Decrease = Decrease in Interest = Bearish

Transaction Volume:

• Volume up = strength
• Drop in volume = panic

Long-Term Holder Movements:

• Persistent Hoarding = Bullish Signals
• Massive sell-off = bearish signal

Technology Upgrade

Significant upgrades usually drive up prices:

Case Study: Taproot Upgrade (November 2021)

• Improve privacy and efficiency
• The market looks good
• Price Innovative High $69,000

Lightning Network Development:

• Resolve small payment issues
• Improving usability
• Long term benefits

7. Media coverage and celebrity effects

The Double-Sided Edge of Media Coverage

POSITIVE REPORTING → ATTRACTING NEW FUNDS

• Mainstream Media Coverage “Bitcoin Innovation High”
• Attracting the attention of outsiders
• Influx of new funds

Negative Reporting→Panic Sell-Off

• “Bitcoin Bubble”, “Bitcoin Scam”
• Stakeholder Panic
• Falling prices

Celebrity Speech Influence

Musk effect:

February 2021:

• TESLA BUYS $15 BILLION IN BITCOIN
• BITCOIN SURGES 20% IN A SINGLE DAY

May 2021:

• Musk Announces Tesla to Suspend Acceptance of Bitcoin Payments (Environmental Concerns)
• BITCOIN SLUMPS 15% IN A SINGLE DAY

Other Celebrities:

• Michael Saylor (MicroStrategy CEO): Long-term Bullish
• Warren Buffett (Buffett): Singing Bitcoin
• Cathie Wood (ARK Founder): Predicted $1,000,000

Impact Force:

• Short term volatility
• Limited long-term impact

8. Competitive currency and market rotation

Bitcoin Market Capitalization (BTC Dominance)

Market capitalization rises → capital flows back Bitcoin

• Investors Seek Safety
• Sell altcoin to Bitcoin
• Bitcoin Price Rises

Market Share Decrease → Funds Flow to Altcoins

• Market Pursuit of High Returns
• Altcoin season is coming
• Bitcoin gains unlike altcoins

Competition for Ethereum

Ethereum Developments Affect Bitcoin:

• DeFi, NFT craze attracts funds
• Funds flow from Bitcoin to Ethereum
• Bitcoin Market Share Declines

But long term complement:

• Bitcoin = store of value
• Ethereum = Application Platform
• The two coexist

9. Derivatives market and leverage

Futures and Contract Impacts

Buy more in bulk → Price rises

• Leverage Amplification Needs
• Promote spot price increases

Bulk Openings → Price Decline

• Doing air pressure
• Price bearing pressure

Explosion and Chain Reaction

Multiple Breakouts → Accelerate Decline

• Falling prices trigger strong flattening
• Strong selling off further depressed prices
• Forming “Pedals”

Empty Single Breakout → Accelerate Rise

• Rising prices trigger strong levels
• Strong buying pushes prices up further
• Forming a “rolling void”

Case: April 2021

• Bitcoin Breaks $60,000
• Large number of empty single blast warehouses
• Short time rush to $64,000

10. The Black Swan Incident

UNPREDICTABLE IMPACTS

Exchanges close:

• Mt.Gox（2014）、FTX（2022）
• Severe damage to confidence
• PRICE PLUNGE

Technical Vulnerabilities:

• Although the Bitcoin mainchain is extremely secure
• BUT EXCHANGES AND WALLETS MAY HAVE VULNERABILITIES
• Panic caused by hacking

Regulatory Raids:

• The government suddenly announces a ban
• The market is not enough
• Panic selling

Summary: Understanding the ups and downs, investing rationally

Top 10 Factors Affecting Bitcoin Price

1. Supply and Demand Relationship - Half Off Events, Organization Purchases
2. Market sentiment - FOMO and FUD
3. Institutional investment - Otoho Entrance and Exit
4. Policy Monitoring - Attitudes by country
5. macroeconomic - Inflation, rising interest rates, USD
6. Technological development - Upgrade, on-chain data
7. Media Celebrities - News & Speeches
8. Market Rotation - ALTCOIN SEASON
9. Derivatives Market - Leverage, blowout
10. Black Swan Incident - Emerging Crisis

Advice to investors

Short-term volatility: Difficult to predict, do not try to accurately cheat or escape the top

Long-term trend: Fundamentally determined (supply, adoption rate, technological development)

Investment strategy:

• Regular Fixed Average Cost
• NOT AFFECTED BY SHORT-TERM FLUCTUATIONS
• Understand the logic behind the ups and downs
• Avoiding Emotional Decision-Making

Risk Management:

• Invest only in idle money
• Diversified Investment
• Set Stop Point
• Continuous learning

Remember:Bitcoin's price goes up and down, which is normal for the market. Understanding the influencers doesn't mean predicting prices, but helping youMake investment decisions more rationally。

In the world of Bitcoin, time is the best friend. Long-term holding, rational investment is the key to profitability.

Disclaimer: This article is for educational and informational purposes only and does not constitute any investment advice. Investing in Bitcoin involves high risk, the price can fluctuate sharply and the investor may lose all the capital. Historical prices and events mentioned in the text are for reference only and past performance does not represent future results. Please make a careful assessment based on your personal financial situation and consult a professional financial advisor if necessary.

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