For anyone following the cryptocurrency markets, Bitcoin’s recent price fluctuations have been akin to a rollercoaster ride. Traders OverTraders.com was created to educate all traders from the novice to the advanced, to mitigate these risks and take advantage of these opportunities. This article discusses what is causing Bitcoin’s price to rise. It explores the effects of international events and provides unique perspective on what the future holds, all presented in a format designed specifically for the retail investor.

Understanding the Economic Landscape

To fully appreciate Bitcoin’s price movements, it’s important to first have an idea of the larger economic backdrop against which Bitcoin exists. Inflation, interest rates, and monetary policy in general affect the risk appetite of investors. Consequently, these conditions have a direct effect on Bitcoin’s value.

The Role of Inflation

Inflation refers to the pace at which the overall price level for goods and services is rising. Both are true, and both have a huge effect on the entire cryptocurrency market. Bitcoin is an inflation hedge. As purchasing power of traditional currencies starts decreasing, investors search for the asset which can help them protect their value, and in most cases experience impulse going into the Bitcoin. This perception alone is powerful enough to increase the demand and thus the price of Bitcoin. When inflation is at a premium, investors flock to Bitcoin. They engage in this behavior to pass along their wealth and maintain their economic mobility.

Interest Rates and Monetary Policy

Because interest rates, determined by central banks, play a huge role in Bitcoin’s price as well. When interest rates are lower, it makes borrowing and investing more attractive, meaning we might see an influx of capital into assets such as Bitcoin. On the flip side, higher interest rates decrease the opportunity cost of holding Bitcoin as it becomes less appealing relative to interest-bearing assets. Monetary policy, which includes actions taken by central banks to manipulate the money supply and credit conditions, can further amplify these effects. Quantitative easing is an unconventional monetary policy in which a central bank adds liquidity to the money supply. That can ignite more investment in Bitcoin, as investors looking for higher returns in a low-yielding world turn to the asset.

Influence of Global Events

Aside from all the economic considerations, other global events can play a large role in Bitcoin’s price. Geopolitical tensions and volatility in global economic growth further add to this uncertainty, leading to the current market environment. Consequently, investors tend to reprice their positions and readjust capital in to, or from, Bitcoin.

Geopolitical Factors

The impact of political instability, trade wars, or international conflicts can produce spikes in volatility throughout the financial markets. Investors flock to safe-haven assets. In times of uncertainty, investors seek safety and security. So in spite of its wild ups and downs, Bitcoin has seemed like a plausible solution. Historically, during periods of heightened geopolitical turmoil, investors have sought refuge in Bitcoin. All their assets are fluctuating, and they want to protect their assets from the chaos in traditional markets.

Economic Growth and Recession

Cycles of economic growth and recession are equally as important. In times of great economic expansion, investors become risk-on optimists. This willingness typically lifts assets such as Bitcoin. When a new recession or economic instability strikes, investors often become more risk-averse. Given the above, they tend to pull back from asset classes that exhibit high volatility, leading to decreases in Bitcoin prices. This ebb and flow of investor sentiment, driven by macroeconomic conditions, is essential to consider when analyzing Bitcoin's price movements.

Bitcoin Market Dynamics

Bitcoin’s price isn’t just a function of what’s happening on in the broader economic environment — internal market dynamics are hugely influential. These dynamics range from Bitcoin’s bull and bear price phases to the Bitcoin halving to major regulatory announcements to the Bitcoin Volatility Index (BVIX).

Bitcoin Price Phases

Bitcoin's price tends to move in cycles, which can be broken down into distinct phases:

  • Reversal Phase: This is where the market transitions from a bear market to a bull market.

Bottoming Phase: A period of price consolidation and accumulation after a significant downtrend.

Appreciation Phase: A steady and sustained increase in price as market sentiment improves.

  • Acceleration Phase: A rapid and often parabolic price increase, driven by strong demand and speculative fervor.

By knowing these phases investors can better see where Bitcoin is at in its market cycle and be empowered to make better investment decisions. This current cycle looks a lot like the 2013 and 2017 Acceleration Phases. To learn more about this, read our appendix “Bitcoin Price Phase Heat Maps (2010–2025).”

Bitcoin Halvings

Bitcoin is unique in its programmed “halvings” which determine how quickly new Bitcoins are released into circulation. These halvings are largely responsible for creating bullish price cycles. Every four years or so, the reward for adding new blocks is halved. This move restricts how many new Bitcoins are introduced to the market. As a result, historically halvings have been followed by substantial price increases as the decreased supply creates upward pressure on demand.

Regulatory Announcements

Regulatory announcements from across the globe have traditionally caused Bitcoin’s price to respond with abrupt and usually volatile knee-jerk reactions. Positive regulatory developments — like a greenlight for a Bitcoin ETF — can uplift investor sentiment and prices soar along with demand. On the flip side, bad news like increased regulatory scrutiny or outright bans can cause sell-offs and subsequent price drops.

Bitcoin Volatility Index (BVIX)

Getting a good grasp of the BVIX is important for anyone who wishes to measure Bitcoin’s market fluctuations reliably. The BVIX index indicates the expected volatility of Bitcoin over the next 30 days. The BVIX is similar conceptually to the VIX, but a higher BVIX means greater expected price swings and a lower BVIX means more stability. According to investors and developers, investors can use the BVIX to assess the overall risk in the Bitcoin market. They can then modify their positions in light of this conclusion.

Future Outlook for Bitcoin in 2024

As we look towards 2024, a few factors stand to have a major impact on the price of Bitcoin. With the anticipated approval of a Bitcoin ETF and other investment vehicles, Bitcoin is set to become a more stable, recognized and accepted member of the financial community. Investors are jumping at the prospect of this shift. So far, the 2024–2025 Acceleration Phase is following trends we’ve seen in past cycles. Fifth and final, historically the blow-off top usually comes much later in the phase. Each cycle tends to bring lower returns.

Significant global events such as a pandemic or major conflict can disrupt the consistent pattern of Bitcoin's price phases and cause unpredictable price movements. Examining bitcoin through the lens of the percentage of addresses in profit uncovers these underlying trends. Further, looking at the one-year realized volatility makes these trends even starker.

Summary and Final Thoughts

Ostensibly, navigating Bitcoin price movements would be a whole lot easier if one developed a deep understanding of macroeconomic factors, international events, and intermarket influences. Know the facts and take a smarter path forward. In doing so, retail investors can mitigate risk and really take advantage of opportunity in the fast-paced environment of crypto. OverTraders.com is committed to equipping traders with the right tools and understanding to thrive in this dynamic market.