Bitcoin Price Catalysts: A Beginner’s Guide

Since its inception in 2009, the price of Bitcoin (BTC) has experienced a volatile history, with 5% to 10% daily price moves in both directions being no exception, especially during bull markets or market crashes.

Bitcoin’s price volatility is caused by numerous catalysts, including investor sentiment toward crypto, regulatory changes, macroeconomic and geopolitical events, advancements in Bitcoin’s technology, and more.

In this guide, we’ll explore the different Bitcoin price catalysts to give you deeper insight into what drives Bitcoin’s price volatility.

Before You Dive In

Before we delve into the upcoming Bitcoin price catalysts, it’s important to understand what Bitcoin is, and that you can also buy Bitcoin directly using a wallet such as Trust Wallet.

Trust Wallet, which can of course be used as your secure Bitcoin wallet, can be downloaded as a mobile app, or you can install the Trust Wallet Extension for your desktop browser. For this guide, we'll focus on creating a new wallet using the Trust Wallet mobile app.

Step 1: Get the most updated version of Trust Wallet

Below you’ll see the steps to create a new wallet, but you could just as easily import an existing Web3 wallet to Trust Wallet, if that’s your preference.

To create a new wallet:

• Download, install and then open Trust Wallet

• Choose “Create a new wallet”.

• Choose your backup option, or you can optionally postpone the backup process by choosing “Skip”.

• Start using Trust Wallet.

Step 2: Buy crypto using your Trust Wallet

• Select the “Buy” button, from the wallet’s Home screen.

• Choose Bitcoin (BTC), and enter the amount you wish to purchase.

• Select the third party provider & payment method you’d like to use.

• Select “Buy BTC”, and then follow the steps to complete the purchase.

Fundamental Factors Influencing Bitcoin Price

Like all tradable assets, the price of Bitcoin is heavily influenced by supply and demand. Bitcoin’s market value is fundamentally affected by the number of coins in circulation and how much people are willing to pay for them.

Bitcoin, by design, has a limited supply of 21 million coins. The closer the circulating supply of Bitcoin gets to the limit, the higher the prices are likely to increase because of Bitcoin’s digital scarcity.

Generally, when the demand for BTC goes up, so does the price because that demand is met with a limited total supply and a decreasing number of new coins coming into circulation.

The decreasing rate at which new coins enter the circulating supply is dictated by the reduction of the Bitcoin block reward roughly every four years, which is referred to as Bitcoin halving events.

To date, there have been three Bitcoin halving events.

The first Bitcoin halving event occurred in November 2012, reducing the Bitcoin block reward from 50 BTC to 25 BTC per block. The second halving event occurred in July 2016, and the reward per block was reduced to 12.5 BTC. In May 2020, the third halving event took place, and the block reward further decreased to 6.25 BTC per block.

Bitcoin halving events have in the past been linked with Bitcoin price increases.

The lowered rate of new Bitcoin creation can create scarcity as the supply of new coins entering the market decreases, potentially driving up the demand for Bitcoin and, as a result, its price. The fourth Bitcoin halving event is expected to occur in 2024. This will reduce the reward from the current 6.25 BTC to 3.125 BTC per block.

Just like other assets, the Bitcoin price is also influenced by global economic events. Bitcoin as an asset is linked to the global economy. Therefore, Bitcoin’s price can easily be influenced by the health of other asset prices, economies, and legislation.

Market sentiment also affects the Bitcoin price. If investors feel positive about Bitcoin and digital assets as a whole, the price usually goes up. If, however, they do feel uncertain, the price tends to decline.

Regulatory and Political Developments

While it’s essentially impossible to regulate a decentralized peer-to-peer network like Bitcoin, governments and other regulatory bodies, such as the Securities and Exchange Commission (SEC) in the US, can impose or advocate for cryptocurrency regulations targeting digital asset service providers.

Such calls for regulations can impact the Bitcoin price.

For instance, in September 2021, China imposed a ban on Bitcoin trading, which affected Bitcoin’s demand as Chinese buyers were largely out of the picture. Mining firms in China had to close shop or move to crypto-friendly countries. This saw the price of Bitcoin plummet from ~$51,000 at the start of September to ~$41,000 by the end of the month.

However, it didn’t take long for the Bitcoin price to surge after the China ban.

The surge resulted from the SEC’s approval of the first-ever US Bitcoin Futures-linked exchange-traded fund (ETF), known as the ProShares Bitcoin Strategy ETF, in October 2021. This saw Bitcoin’s price increase to $69,000 before it began its long market correction.

Beyond government regulations and policies, political stability and unrest can also influence the value of Bitcoin, just like it can other asset classes. For the most part, Bitcoin is a diversification or a safe-haven tool for investment during periods of extreme political uncertainty, all thanks to its hedging capabilities and censorship resistance.

Historically speaking, during times of political unrest, people are more likely to invest in Bitcoin, especially when their country’s fiat currency is losing value, to later benefit from Bitcoin's hedging capabilities.

Furthermore, people in unstable economies tend to convert some of their funds into BTC as it’s not controlled by any government and cannot be easily seized. So, regardless of whether there is political stability or unrest, people still get to benefit from their BTC holding if the crypto market remains stable.

Technological Advancements and Innovations

Bitcoin is not a static technology.

Improvements are being made to Bitcoin’s protocol, and second-layer protocols are being developed to bring more use cases and functionalities to Bitcoin.

As a result, Bitcoin isn’t just digital gold and internet money.

Bitcoin also provides the infrastructure for emerging technologies, such as decentralized finance (DeFi), non-fungible tokens (NFTs), and more.

BRC-20, for instance, is a new experimental token standard on the Bitcoin network that allows fungible tokens to be minted and transferred on the Bitcoin blockchain. BRC-20 draws its inspiration from Ethereum-based ERC-20 tokens. The functionality of the BRC-20 tokens is based on the Ordinals protocol, which uses a process known as inscription to allocate numbers to satoshis and offers a method of adding extra data to them.

The BRC-20 token standard has a huge impact on the Bitcoin ecosystem as it provides Bitcoin with a token issuance functionality that the cryptocurrency didn’t initially have. In addition, it offers compatibility, fungibility, popularity, and adoption, which boosts the use of the Bitcoin blockchain.

The Ordinals protocol has also created a new market for on-chain Bitcoin NFTs, enabling the creation of unique digital assets called Bitcoin Ordinals that can be inscribed (recorded) directly on the Bitcoin blockchain, allowing artists, brands, and content creators to share and monetize their work on the most secure blockchain in the market.

Besides emerging technologies, Bitcoin’s network upgrades also impact its price.

Bitcoin network upgrades, like the Taproot upgrade, are designed to bring performance efficiency to the Bitcoin blockchain. Typically, improved efficiency translates to a user-friendly network. This means an increased and enhanced user adoption that can potentially increase the price of Bitcoin.

Market Psychology and Investor Behavior

Investor psychology also plays an important role when it comes to Bitcoin’s price.

When investors turn bullish and the price goes up, more people take notice and start buying, typically driving the price even higher. We have seen this time and again during the big bull markets in the past 15 years.

A lot of that comes down to fear and greed, which are two big drivers of investor behavior. When the price of bitcoin starts to shoot up, investors get greedy and start buying more. Conversely, if the price starts to drop, investors tend to get fearful, and many start to sell, which leads to further price drops.

Media coverage of Bitcoin also affects market sentiment towards the cryptocurrency and, by extension, its price. For instance, when the Bitcoin price is rallying, or there is a halving event or any kind of rumors about Bitcoin regulations, the media will cover it, which then typically leads to price movements.

For example, after the SEC approved the ProShare Bitcoin Strategy ETF back in October 2021, major financial media outlets published the news and increased coverage of Bitcoin. As a result, the price of Bitcoin skyrocketed, surging to over $69,000.

Conclusion

Bitcoin has been around for almost 15 years now, and its price is arguably still in the discovery phase. This means that the price of Bitcoin will continue to fluctuate before it can potentially establish itself as a global medium of exchange with low volatility, akin to major global reserve currencies.

While it remains unclear whether BTC will ever achieve relative price stability, a combination of factors, including supply and demand, investor and market sentiments, regulatory developments, technological advancements, and innovations, will continue to impact the price of Bitcoin over the long term.

Therefore, as an investor looking to invest in Bitcoin, you must do your own research (DYOR) before investing. In addition, ensure you stay informed of the latest trends and events happening in the Bitcoin space and how these changes may impact your Bitcoin investments.

And should you choose to invest in BTC, remember that you can buy, sell, swap, manage, and earn BTC using Trust Wallet. Download Trust Wallet today to manage your Bitcoin securely.

Frequently Asked Questions

What are the main factors influencing Bitcoin's price volatility?

The price of Bitcoin is influenced by a variety of factors, including investor sentiment toward cryptocurrencies, regulatory changes, macroeconomic and geopolitical events, advancements in Bitcoin’s technology, and the fundamental principle of supply and demand.

How does the supply of Bitcoin affect its price?

Bitcoin has a capped supply of 21 million coins. As the circulating supply approaches this limit, prices may increase due to the scarcity of new coins entering the market, especially with Bitcoin halving events reducing the block rewards over time.

What impact do global economic events have on Bitcoin's price?

Bitcoin, as a global asset, is affected by the health of other asset prices, economies, and legislation worldwide. Economic instability can lead to increased investment in Bitcoin as a potential safe haven.

How do technological advancements in Bitcoin influence its price?

Upgrades and innovations in Bitcoin's protocol and the development of new functionalities, like the BRC-20 token standard and the Ordinals protocol, can enhance Bitcoin's utility and attractiveness, potentially impacting its price.

Can market psychology and investor behavior affect Bitcoin’s price?

Yes, investor psychology, including fear and greed, plays a significant role in Bitcoin's price movements. Media coverage and public sentiment can also significantly influence market behavior and price trends.

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Note: Any cited numbers, figures, or illustrations are reported at the time of writing, and are subject to change.