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By Kyle Anthony, Benzinga
Bitcoins recent surge in value, a topic that has caught the attention of both investors and casual observers, might have left some wondering if they missed out on a golden opportunity. In truth, the cyclicality of Bitcoins price will likely always leave room for individuals to enter at a reasonable price point and benefit from the appreciation that occurs. Below, we expound on the market dynamics that influence Bitcoins price and recent developments that catalyzed the price surge.
Factors Influencing Bitcoins Price
Though Bitcoin is a digital currency, the economic fundamentals of supply and demand still influence its pricing. Given that the underlying protocol/coding for Bitcoin limits its supply to 21 million coins, fluctuations in demand can lead to price volatility. Additionally, factors such as investor interest, adoption rates and macroeconomic conditions affect demand, while mining difficulty adjustments affect the rate of new supply entering the market.
A seminal factor influencing Bitcoins price is Bitcoin Halving, which occurs every four years; the last one occurred on April 19th, 2024. In simple terms, Bitcoin Halving reduces the rate at which new coins are created. Thus, it is self-induced scarcity written into Bitcoins code. The rationale for these quadrennial halving events is to reduce the supply of Bitcoin entering circulation, thus allowing existing coins to keep their value (i.e., avoid inflation).
Finally, the mass adoption and securitization of Bitcoin are also influential pricing factors. After rejecting them for almost a decade, the U.S. Securities and Exchange Commission recently approved spot Bitcoin ETFs, which resulted in several financial companies like BlackRock (NYSE: BLK) launching these solutions. Outside of the U.S., markets such as Hong Kong are launching Bitcoin ETFs with great fervor, as there is growing investor demand for these asset types. The securitization of Bitcoin and the usage of these instruments by retail and institutional investors is a growing factor influencing Bitcoins price.
Bitcoins Cyclicality
The Bitcoin market cycle refers to the recurring pattern of price behavior in the Bitcoin market, characterized by alternating periods of appreciation and depreciation. During these periods, there are various phases that investors and individuals should take note of, as they can be a gauge as to where the Bitcoin price is heading.
Phase 1: Accumulation
This occurs when prices are low but small signs of growth appear. During this phase, buyers will accumulate cheaper Bitcoin, representing the point of maximal financial opportunity. Typically, there is bearish sentiment in the market, so volume is low, and prices fluctuate in a tight range near the bottom.
Phase 2: Continuation
Phase 2 occurs as the price continues moving towards an all-time high. A halving event has historically occurred here, coinciding with shrinking exchange reserves as buyers hoover up supply to capture rising prices in anticipation of new all-time highs.
Phase 3: Parabolic
When the price eclipses the previous all-time high, price action will start to move exponentially to the upside pushing the price to a new all-time high, which has exceeded the previous landmark by a significant factor. This phase is extremely volatile, with rapid price increases followed by large corrections.
Sell volume builds as some investors lock in healthy profits, even as many market participants continue buying, believing the bull market has more room to run. As a result, price volatility is low, given that buy and sell volumes begin to balance against a backdrop of overconfidence.
Phase 4: Correction
Following the Parabolic phase, the market may see a major correction to the downside. Previous bear market periods have resulted in approximately 80% drawdowns from the top and negative price action for approximately a year.
Historical Bitcoin Events
Over the years, various market events have influenced Bitcoins price. Over the recent decade, the following events have had a material impact on Bitcoins price:
Silk Road shutdown (2013): In October 2013, the FBI seized the Silk Road, an online marketplace notorious for facilitating illegal Bitcoin transactions. The closure of Silk Road removed a significant source of demand for Bitcoin, leading to a short-term price decline amid regulatory uncertainty and negative media coverage.
Bitcoin's first bull run (2013): In late 2013, Bitcoin experienced its first major price rally, soaring to an all-time high of over $1,000 per coin from just $11 per coin in August 2011. This surge in price was fueled by growing mainstream awareness, media attention, speculative trading activity and favorable regulatory developments in some jurisdictions.
China bans Bitcoin exchanges (2017): In September 2017, China announced a ban on crypto exchanges and initial coin offerings (ICOs), triggering a significant sell-off in the market. China's regulatory crackdown and concerns over ICO scams and market manipulation contributed to a decline in Bitcoin's price.
Bitcoin's bull run and institutional adoption (2020-2021): Bitcoin experienced a remarkable bull run starting in late 2020 and continuing into 2021, reaching new all-time highs above $60,000 per coin. This rally was driven by a confluence of factors, including increasing institutional adoption with several fintech giants coming on board, corporate treasury investments and growing mainstream acceptance of Bitcoin as a store of value and hedge against inflation.
Tesla's (NASDAQ: TSLA) Bitcoin investment (2021): In February 2021, Tesla announced that it had purchased $1.5 billion worth of Bitcoin and would accept the cryptocurrency as payment for its products. This endorsement from one of the world's most prominent companies further bolstered Bitcoin's legitimacy as an institutional-grade asset, leading to a surge in price.
Bitcoin ETF Launch (2024): In 2024, the long-anticipated launch of spot Bitcoin Exchange-Traded Funds (ETFs) marked a milestone in mainstream cryptocurrency adoption. Following regulatory approvals and growing investor demand for accessible Bitcoin investment vehicles, several financial institutions introduced Bitcoin ETFs, allowing investors to gain exposure to digital assets through traditional brokerage accounts. The introduction of Bitcoin ETFs provided retail and institutional investors with a convenient and regulated means to invest in Bitcoin, further legitimizing its status as an asset class.
Keeping An Eye On The Future Of Bitcoin
While the recent run-up in Bitcoins price may have left many individuals pondering whether they missed a golden opportunity, they can take solace in knowing that such an opportunity may arise again in the future.
For individuals who want to remain abreast of the latest Bitcoin and cryptocurrency developments, Caleb & Brown, the worlds leading cryptocurrency brokerage, offers the latest information about what's happening within the cryptocurrency landscape.
Visit their website here to learn more and stay prepared to capitalize on opportunities.
Featured photo by Andr Franois McKenzie on Unsplash.
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