What Determines Bitcoin Price: Key Factors
The price of Bitcoin can swing by double digits in a single day, leaving newcomers puzzled. Pricing may seem like magic, but in reality, it follows basic laws of supply and demand.
Bitcoin’s price depends on coin scarcity and inflows of money through exchanges and ETFs.
Supply
The number of bitcoins is capped at 21 million coins — this is written permanently into the network’s code. The blockchain is a shared ledger of all transactions visible to all network participants. Miners are participants’ computers that verify transactions and earn new coins for doing so.
How it works:
Every ~10 minutes, miners receive a reward in bitcoin for processing a block of transactions.
Every four years, the reward is cut in half — this is called a halving.
The flow of new coins slows down, scarcity increases.
Think of gold mining: if ore becomes scarcer but demand stays the same, the price of gold rises. Bitcoin works the same way.
What to do:
Remember the date of the last halving — April 2024.
The next halving is expected in 2028.
Before halving, prices often rise due to scarcity expectations.
After halving, there may be a correction — don’t panic.
Rule of thumb: If less than a year remains before a halving, the price may rise. If less than a year has passed after a halving, expect sharp moves.
Typical mistakes:
Buying right after halving news at peak prices.
Believing the halving immediately boosts the price — the effect accumulates over months.
Ignoring halving cycles when planning purchases.
Exception: If the broader market panics over macroeconomics, even scarcity won’t hold the price.
Key takeaway: Bitcoin scarcity increases every four years, a fundamental driver of price.
Institutions
Big money flows into Bitcoin through special instruments — exchange-traded funds (ETFs) and corporate purchases. An ETF is a fund that buys bitcoins and issues shares traded on traditional exchanges.
How it works:
Investors buy bitcoin ETF shares through a broker.
The ETF receives the cash and purchases actual bitcoins on the market.
When investors sell ETF shares, the fund sells bitcoins back into the market.
It’s like a faucet: open it — money flows into Bitcoin; close it — money flows back.
Checklist to track:
Monitor weekly ETF inflows/outflows on sites like BitcoinTreasuries.
Track purchases by public companies (Tesla, MicroStrategy, Block).
Watch regulatory decisions on ETFs across countries.
Check pension fund news about adding bitcoin.
Compare ETF trading volumes to the overall market.
If weekly ETF inflows exceed $100 million, prices usually rise. If outflows top $200 million, expect downward pressure.
Common mistakes:
Buying ETFs instead of real bitcoins — you don’t control the keys.
Ignoring ETF data when making purchase decisions.
Assuming one big inflow immediately lifts the price — the effect builds over time.
Counterexample: Even with large ETF inflows, prices can fall if whales — large holders — sell simultaneously.
Key takeaway: ETF inflows equal institutional demand; track weekly stats.
Macroeconomics
Bitcoin now moves with the stock market — rising during optimism, falling during panic. This correlation grew stronger after 2020, when institutional investors entered crypto.
Mechanism:
Central banks raise rates — investors flee risky assets for bonds.
Inflation rises — Bitcoin is bought as protection against devaluing money.
Geopolitical crises — Bitcoin can rise as “digital gold.”
Imagine a shopping mall: when people are confident, they spend more; when worried, they cut back.
What to watch:
U.S. Fed interest rate decisions — 8 times a year.
U.S. CPI inflation data — monthly.
S&P 500 VIX fear index — shows panic sentiment.
Dollar index DXY — a strong dollar pressures Bitcoin.
News on banking crises and sanctions.
Rule of thumb: If the Fed hikes rates quickly (0.5%+ per meeting), expect crypto to fall. If rates are held or cut, it’s supportive for growth.
Common mistakes:
Buying Bitcoin right when bad macro data drops — price may keep falling.
Ignoring the link to stocks — “but Bitcoin is decentralized.”
Forgetting time zones — U.S. data comes out overnight in Europe.
Exception: Sometimes Bitcoin rises while stocks fall, if stocks drop due to failures in traditional finance (e.g., Silicon Valley Bank in March 2023).
Key takeaway: Bitcoin is part of global finance; watch Fed decisions and stock market sentiment.
Liquidity
Liquidity is how easily you can buy/sell without moving the price much. In crypto, liquidity is low, so big trades cause sharp price moves.
Impact on price:
Large buy order — price jumps up.
Large sell order — price drops.
Market makers — trading bots that provide liquidity for a fee.
Market analogy: if few apple sellers are at the market, one large buyer clears them out and drives prices up.
What to check before trading:
Order book depth — how many bitcoins you can buy without slippage.
Spread between buy and sell — the smaller, the better liquidity.
24-hour trading volumes — high volumes mean good liquidity.
Time of day — Asian and U.S. sessions are more liquid.
Weekends — liquidity declines.
Using leverage — borrowed money to increase position size — adds risks. Price drops trigger forced liquidations — automatic sales that push prices lower.
Common pitfalls:
Placing market orders during low liquidity — you may overpay.
Trading with leverage without understanding liquidations — you can lose your deposit.
Ignoring trading hours — at night or weekends you may get poor execution.
Paradox: during strong moves, when everyone wants to buy or sell, liquidity disappears — price swings harder.
Key takeaway: Bitcoin’s low liquidity amplifies price swings; use limit orders.
Sentiment
The crypto market depends heavily on emotions — fear, greed, euphoria. Sentiment can be measured through indexes and behavioral patterns.
Impact on price:
Greed — everyone buys in a rising market, inflating a bubble.
Fear — mass selling on declines, price falls below fair value.
FOMO (fear of missing out) — buying at price peaks.
It’s like a subway crowd: everyone rushes one way without knowing why.
Sentiment can be tracked with the Crypto Fear & Greed Index — from 0 (extreme fear) to 100 (extreme greed). Above 75, be cautious with buys; below 25, it’s often a good long-term entry. Daily values are available on Alternative.me.
Checklist of sentiment indicators:
Number of new wallets — growth means new entrants.
Social media activity — hype peaks align with price tops.
News mentions — the more, the closer to peak.
Futures premiums — if much higher than spot, the market is overheated.
Long/short ratio on exchanges — above 4 signals greed.
Contrarian rule: When everyone says “Bitcoin is dead,” it’s time to buy. When taxi drivers recommend crypto, it’s time to sell.
Mistakes of emotional trading:
Buying after a sharp rise — you’ll hit a correction.
Panic-selling after a drop — you’ll miss the rebound.
Following social media hype — influencers often sell at the top.
Counterintuitive point: The strongest rallies start when sentiment is at rock bottom and faith in growth is gone.
Key takeaway: Buy during extreme fear, sell during extreme greed — move against the crowd.
Regulations
Regulatory decisions can instantly move Bitcoin’s price by 10–20%. The U.S., EU, China, and other major jurisdictions matter most.
Key regulators and their impact:
SEC (U.S.) — ETF approvals, security classifications, exchange fines.
CFTC (U.S.) — derivatives and futures regulation.
ECB and EU national regulators — exchange licensing, MiCA requirements.
Central Bank of Russia — restrictions on operations, exchange rules.
Historical example: When China banned bitcoin mining in 2021, the price dropped from ~$65,000 to ~$30,000 in two months. When the SEC approved the first spot ETFs in January 2024, the market reaction was mixed: expectations were positive, but in the following days Bitcoin’s price temporarily fell (a “sell-the-news” effect).
What to track in news:
SEC decisions on new ETF applications — often delayed.
Central bank heads’ statements on crypto.
Tax law changes — affecting institutional investors.
Licensing of major exchanges in new jurisdictions.
FATF international AML standards.
If a major regulator announces positive changes — prices may rise. If bans — expect declines.
Investor regulatory mistakes:
Buying right after positive news — price may have already jumped.
Ignoring regulatory risks in long-term investing.
Confusing rumors with official decisions — always verify sources.
Unintuitive point: Sometimes negative news is already priced in, and prices rise after official confirmation.
Key takeaway: Watch SEC and other mega-regulators — they move markets more than technical analysis.
Bitcoin’s price is driven by scarcity plus institutional demand, flavored by crowd emotions and regulatory decisions. All factors interact, amplifying moves in both directions.
Start simple: Before buying, check the fear & greed index, latest ETF inflows, and the Fed’s decision calendar. These indicators give a solid baseline for the price trend over the next month.
Related reading: What is Bitcoin and how does a cryptocurrency work.
Disclaimer: This information is for educational purposes only and is not financial advice.
