11 factors that make the price of Bitcoin go up

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In 2009, the Bitcoin network went live and the world changed forever. The first cryptocurrency started out with a value of $0, and it took years before bitcoins gained value in terms of any national fiat currency. But at the time of writing in late September 2021, the value of Bitcoin had risen to over $47,000, after beginning at $0 just twelve years earlier.

 

There are a number of factors that drive Bitcoin’s prices — including its soaring highs and lows. Here are 11 factors.

 

RelatedHow to use a Bitcoin ATM

1. Supply and demand

Part of what determines Bitcoin price is supply and demand. The Bitcoin protocol is designed to limit the supply of new coins. A new block of transactions is mined about every 10 minutes, and miners receive a set reward of new bitcoins for finding each block.

 

This reward amount is steadily reduced overtime and there are only 21 million bitcoins that can ever be mined. As of June 2021, about 18.74 million bitcoins had been mined, leaving 2.26 million bitcoins remaining. It’s estimated that the final bitcoin will be mined sometime around the year 2140.

 

On the other hand, the fiat currencies that prices are measured in have no supply cap and are always being created in ever-increasing amounts. This can result in more fiat currencies chasing fewer bitcoins, which can lead to higher Bitcoin prices.

2. Bitcoin halving

Halving is part of the Bitcoin protocol that contributes to the supply and demand dynamics. Rather than new bitcoins being created at a steady or ever-increasing rate, the reward that miners receive for mining new blocks gets cut by 50% every 4 years or so.

 

In 2009, the block reward was 50 bitcoins. Over the next 11 years, the reward was “halved” three times, or reduced as follows:

 

•   2012: 25 bitcoins

•   2016: 12.5 bitcoins

•   2020: 6.25 bitcoins

In this way, Bitcoin remains a deflationary currency thanks to the process of Bitcoin mining. Fiat currencies, being inflationary, work in the opposite manner. Their supply increases each year with no limit on how many currency units can be created.

3. Monetary policy

Because Bitcoin has a fixed supply limit, the price tends to correlate with the supply of new fiat currency being created. An increase in the money supply can be part of what drives up Bitcoin’s price. However, this isn’t a hard and fast rule — and past performance doesn’t always indicate future results.

 

It is worth noting that throughout 2020 and early 2021, the money supply in the U.S. saw massive increases to the tune of trillions and trillions of new dollars being created. During this same period, the price of Bitcoin rose from under $4,000 in March 2020 to over $60,000 in April 2021. When it comes to questions of what affects the Bitcoin price, monetary policy is thought to be a key factor.

4. Regulatory factors

Regulatory news can also affect Bitcoin price. Some people believe that national governments will one day create such strict crypto regulations around Bitcoin and companies that use it that the technology will not survive. Because of this fear, sometimes it only takes a simple statement from a regulatory agency to cause prices to tank.

 

At the same time, some regulation can also be seen as a positive sign. It signals that the technology is seeing increased adoption and becoming more and more accepted. So, when regulatory agencies respond favorably to Bitcoin or announce new regulations that seem benevolent, this can be part of what makes Bitcoin go up.

5. Memes and social media

While technical matters and serious issues can contribute to what drives the Bitcoin price, more light-hearted factors can also influence what makes Bitcoin go up or down. Memes circulating on social media can sway sentiment toward crypto markets and possibly impact prices.

 

This could create a feedback loop where positive meme sharing leads to a bump in prices, which leads to more memes, leading to prices rising more, and the cycle continues. Some of the most popular Bitcoin memes involve phrases like “going to the moon” and references to sports cars like Lamborghinis.

6. Mainstream media

In addition to social media, the regular news cycle can also influence Bitcoin price. Almost every time Bitcoin suffers a price correction, numerous mainstream media outlets begin publishing negative news.

 

Some of these can be so pessimistic that they fall into the category of what’s become known as “Bitcoin obituaries,” where a media outlet proclaims that Bitcoin has died. Sometimes influential politicians, bankers, or bureaucrats make negative statements about Bitcoin too, leading to similar effects on price.

 

On the other hand, when overall media coverage is positive, this can make the price of Bitcoin go up. In 2020 and 2021, news about famous influential investors making bullish bets on Bitcoin and large corporations adding Bitcoin to their balance sheets were seen as significant factors with regard to what makes Bitcoin go up.

7. Miners

In Bitcoin mining, powerful computers process transactions for the network, keeping Bitcoin running in a decentralized way. Mining operations continue running, at least in part, with funding from the bitcoins that they mine.

 

But miners have to be very careful about what they do with their new bitcoins. If miners believe the price of Bitcoin will go up in the future, they are likely to hold their coins for some time. If miners believe prices will go down soon, they might sell their coins immediately.

 

Miners refusing to sell new coins can be part of what makes Bitcoin go up, as new supply never makes it to crypto exchanges where it could drive prices down.

8. Hash rate

The Bitcoin hash rate is one of the most important metrics in Bitcoin. The hash rate indicates how hard miners are working to solve the mathematical problems needed to process transactions. The more miners that are contributing computing power, the higher the hash rate.

 

While there’s disagreement about whether or not hash rate is part of what affects the price of Bitcoin, there does appear to at least be some correlation. If nothing else, a higher hash rate makes the network more secure and signals confidence in the near-term.

9. Network adoption

Bitcoin is the world’s first decentralized monetary network. The more people using the network, the more valuable it tends to become. (This same principle holds true for things like social media networks, too.)

 

When it comes to the Bitcoin network, one of the main metrics used to measure adoption is the number of new crypto wallets being created. New wallets indicate that more people are using Bitcoin, some of them presumably for the first time. Sometimes when a lot of new wallets are coming online, this can be a sign of confidence in the technology and be part of what makes Bitcoin go up.

10. Risk appetite

General sentiment in financial markets can be part of what makes Bitcoin go up. When investors feel comfortable taking on more risk than usual, they could be more likely to put money into Bitcoin.

 

On the other hand, some Bitcoin proponents believe Bitcoin to be more of a safe haven asset (the opposite of a risk asset). Bitcoin has a limited supply.

11. Technical analysis

Crypto technical analysis can influence the price action of almost any tradeable asset. TA involves patterns identified by computer-generated data and from human eyes identifying patterns on charts. When a certain pattern emerges, it’s thought that prices could be about to move upward or downward, depending on the type of technical setup.

The takeaway

When it comes to what makes Bitcoin go up, there are at least a dozen potential factors. Many of them are related to market sentiment, the status of the Bitcoin network, and supply-and-demand dynamics.

 

Learn more:

This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.

 

SoFi Invest
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA/ SIPC. SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.


1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).


2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.


3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.


For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.


Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA, the SEC, and the CFPB, have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.


Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.

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Guide to Bitcoin IRA: Pros, cons & what to know

 

A Bitcoin IRA (individual retirement account) is a self-guided retirement account that holds Bitcoin in its portfolio. Typically, most IRAs invest in stocks, bonds, or precious metals. A Bitcoin IRA invests in Bitcoin, and perhaps several different types of cryptocurrency.

 

There is no official designation for a Bitcoin IRA or Bitcoin Roth IRA by the IRS or any other regulatory agency—the term “Bitcoin IRA” simply refers to an IRA that includes Bitcoin.

 

Related: How to invest in Bitcoin

 

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A cryptocurrency IRA could provide some unique benefits, including offering overall portfolio diversification, and potentially unheard of price appreciation.

 

 

Grindi / istockphoto

 

Bitcoin provides a unique way to diversify an individual’s overall investment portfolio.

 

Given Bitcoin’s extreme outperformance of all other asset classes over the last ten years, it’s often said that Bitcoin is “uncorrelated” with the rest of the investment world. While that trend was upended in early 2020 as Bitcoin experienced a positive correlation with the S&P 500, some investors still consider it a more volatile investment.

 

whyframestudio / istockphoto

 

Given the unparalleled price appreciation bitcoin has enjoyed to date, along with the fact that cryptocurrency is an uncorrelated asset class and exists outside the control of any single centralized authority, some investors have wondered if it could be a reasonable retirement option.

 

There have been periods when Bitcoin traded in tandem with stocks, but from 2009 to 2020, Bitcoin has had over a 1,000,000% price increase (from less than $0.01 to more than $10,000). By comparison, the S&P 500 index provides an average return of 8% annually. That said, past performance is never a guarantee of future returns.

 

SKapl / istockphoto

 

There are also potential drawbacks to holding investments in a Bitcoin IRA, including both volatility and fees.

 

 

rockdrigo68 / istockphoto

 

Bitcoin has shown extreme volatility at times. This is one of the main reasons the asset class is considered risky by some, although this perception has begun to change recently.

 

The list of large corporations (like PayPal, Square and MicroStrategy) and self-made billionaires announcing large investments in bitcoin continues to grow. Successful billionaire investors like Paul Tudor Jones and Stanley Druckenmiller believe that Bitcoin’s overall value proposition outweighs its volatility.

 

Still, for investors with low risk tolerance, volatility could be a big drawback. Seeing investment funds fall by ten or twenty percent (or more) in a single day can be too much for some people.

 

David Shares on Unsplash

 

Perhaps the biggest and most assured drawback of investing in a Bitcoin IRA would be the fees involved.

 

Setting up an account alone could cost thousands. Every trade engaged in on an investor’s behalf could also come with fees in excess of 1% per trade.

And as with other IRAs, withdrawing funds before retirement results in additional fees and taxes.

 

Taken together, the final taxes and fees could eat into a portion of the profits and tax advantages earned by a Bitcoin IRA.

 

Andre Francois on Unsplash

 

The main way to invest in a bitcoin IRA is to use a trusted service provider that helps investors establish IRAs that hold Bitcoin.

 

There are some companies that have partnered with bitcoin custodial services like BitGo, for example, to help safeguard funds for investors—although these companies cannot guarantee against loss.

 

The specific process for starting a bitcoin IRA might vary according to which provider an individual chooses.

 

A Bitcoin IRA provider can help investors buy cryptocurrency to add to their portfolio while also safeguarding the funds for them.

 

Jirapong Manustrong / istockphoto

 

A cryptocurrency IRA works much like any other IRA. It’s a retirement account that invests in Bitcoin. The main difference for most customers is they will likely be interacting with three different entities:

 

 

Deposit Photos

 

These are the companies an individual will deal with when they want to add Bitcoin to their IRA. They are the financial rails through which assets will be converted into Bitcoin.

 

DepositPhotos.com

 

These are usually banks, credit unions, or brokerages that hold the assets in an IRA. Traditional IRAs invest in stocks and bonds, but self-directed IRAs allow investors to hold other assets like gold, real estate, or cryptocurrency.

 

Cn0ra / istockphoto

 

Typically, a Bitcoin IRA service will have a partnership established with a trusted wallet provider or custody solution that securely holds the private keys to a customer’s Bitcoin funds.

 

Stanislav Palamar/istockphoto

 

The answer to this question is “maybe, but probably not.”

 

401(k) plans generally don’t allow for the direct purchase of cryptocurrency. There are potential ways to roll over a portion of 401(k) funds into Bitcoin, but the easiest way might still be to use a self-directed IRA.

 

designer491 / istockphoto

 

The answer to this question depends on how a Bitcoin IRA company stores the private keys to an investor’s crypto.

It is widely acknowledged that to be truly safe, keys must be held off-line in cold storage and secured using some kind of multi-signature (multi-sig for short) method. This means that the funds can’t be accessed by any hacker on the internet, and that multiple access methods are required to retrieve any funds.

 

Multi-sig works kind of like a safety deposit box, where there are two physical keys—one held by the bank and one held by the customer.

 

Multi-signature security means that there must be at least two means of user verification before funds can be accessed. A basic example would be a customer having to answer emails from two separate email accounts.

 

More complicated methods might involve some kind of photo or voice identification in addition to multiple emails and an additional key held by the custodian of the funds.

 

peshkov/istockphoto

 

As far as investment gains or losses are concerned, investors will have to decide for themselves whether or not long-term bitcoin investing is safe in terms of their comfort level and their goals. The technology is only 11 years old at the time of writing.

 

There’s always a chance, however slim, that the project could fail. That said, the prospect of incredible returns seems to sway more and more investors.

Since 2009, the price of one Bitcoin in US dollar terms has risen well over 1,000,000%, making Bitcoin the best performing asset of the decade—and in history.

 

While past performance is never a guarantee of future outcomes, if this trend were to continue, it could potentially mean substantial returns for investors over the long term.

 

peterschreiber.media/istockphoto

 

A Bitcoin IRA or Bitcoin Roth IRA is an individual retirement account that holds bitcoin. Instead of a traditional IRA that holds stocks and bonds, a Bitcoin IRA is a self-directed IRA that can hold a variety of assets like gold, real estate, or Bitcoin.

 

In recent years, several service providers have stepped in to fill the market need for people wanting to add bitcoin to their retirement accounts. While the process is relatively straightforward, one of the major drawbacks that might turn many investors off could be the potential high fees involved.

 

Learn More:

This article
originally appeared on 
SoFi.comand was
syndicated by
MediaFeed.org.

 

SoFi Invest
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA  SIPC  . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
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Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA  the SEC  , and the CFPB  . PDF File, have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments.
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