What determines the price of bitcoin

Bitcoin is the first, most important, and most well-known cryptocurrency that came onto the market in 2009. Back then, BTC was not yet listed on exchanges, and Bitcoin as an asset had not yet emerged. The first transactions with Bitcoin took place in 2010 when 1 BTC cost $0.0025. And then began an intriguing and dramatic journey of BTC along with the price chart, going from $0.01 in 2012, through $20,000 in late 2017, to $60,000 in 2021. Today (October 2021) is the Price of BTC $62,000 (€53,381).

The limited issue as one of the price factors

The price of an asset depends on its rarity. Gold, for example, is a rare metal but is abundant in deposits, with the osmium-187 isotope accounting for only 5 · 10 −6. Because of this, osmium-187 costs $200,000 per gram and gold — $55.

Bitcoin is the same story. The cryptocurrency blockchain is designed to issue a total of 21 million BTC and no more, and to date about 19 million of them have been mined. 

As a result, the price of bitcoin increases in the long run.

Not just individuals

Right from the start, the second half of 2020 and 2021 was characterized by the interest of institutional investors in cryptocurrencies and in particular in Bitcoin. For example, software company Microstrategy started investing in BTC last year and this year has continued on its course. He currently owns 91,850 BTC worth $3.5 billion.

And the investment company Grayscale Investments, for example, controls about 500,000 BTC, and by the end of 2021, the volume of Bitcoin in the funds it manages could reach 5% of the total Bitcoin mass.

Tesla isn't far behind either: in February 2021, the company announced it was investing in bitcoin, as well as accepting BTC as payment for its cars (although Musk later changed his mind on that).

Colorful headlines about big companies buying bitcoin play into the hands of BTC's growth because they draw public attention to it, and everyone thinks, "Now that these smart guys have invested in bitcoin, there's something to it." I'll buy it too."

In other words, the following scheme works here: large buying by institutional investors -> hype in the media -> public interest in cryptocurrencies -> demand growth -> price increase.

“The dollar is not money, cryptocurrencies rock”

Covid-19 and everything related to it has dealt a tangible blow to the global economy, and politicians and economists have so far come up with no better alternative to deal with the crisis than simply printing new money. 

And now they do. In the last year 2020, Trump printed $2 trillion and threw it out of a helicopter distributed them as financial aid to US citizens and corporations. Where have people and businesses used this money? Of course, they spent some of it, but a huge amount of money flowed into exchanges and crypto-assets. In many ways, this is what Bitcoin owes its growth in 2020 to.

 In 2021, Biden is following his predecessor's example: he has already printed $0.9 trillion and promised, "I will give more." It appears that some of that newly printed money will go back into crypto investing.

In June 2020, for example, the ECB printed 1.3 trillion euros as part of the TLTRO loan program. In a single day.

In general, we can already say with certainty: If money is printed, the stock exchanges and cryptos can be expected to grow. Not immediately, of course — there must be a certain delay — but the rate increase is guaranteed. 

Halving as a driver of price growth

A halving, i.e. a halving of the block reward in the Bitcoin network, takes place every four years. And every time, a few months after each halving, the price of BTC increased. A halving occurred in 2016 (and 2017 already saw a price spike), and then in May 2020 (followed by a BTC price spike last fall). This phenomenon is easy to explain, because after the halving, the rate of bitcoin inflow to wallets, and subsequently to exchanges, decreases sharply. The supply goes down – the price goes up.

The next Bitcoin halving is scheduled for 2024. One does not need to be visionary to make a correct BTC price forecast for this year. By the way, PlanB's S2F model is built based on halving, and so far the actual price correlates well with this model. If you look at the S2F chart, you can see Bitcoin's price spikes occurring several months after the halving. The true value of bitcoin is indicated by yellow dots — it tilts towards the model chart, sometimes away from it, sometimes closer to it.

Hashrate is our everything

Hashrate is the speed at which hash values ​​are calculated on the Bitcoin blockchain. This value depends on the speed of transaction processing in Bitcoin and in general the practicality of the cryptocurrency. When the hash rate drops, transactions become slow. And who needs a blockchain where operations take several hours?

A similar situation has occurred only recently. In April this year, several power plants were closed due to accidents at coal mines in the Chinese provinces of Shanxi, Guizhou, and Xinjiang. As a result, some miners from China (and up to 75% of all Bitcoin mining capacity is in China) have been forced to shut down their farms. The hash rate dropped by up to 70% depending on the pool and the bitcoin price also plummeted, collapsing by 10%. Transaction speeds dropped dramatically and people waited several hours to complete a transaction.

Thus, the BTC price is strongly influenced by the activity of the miners, or more precisely by the hashrate.

Official bans

China has again threatened to ban bitcoin mining. So, on May 21, it became known that the authorities of the Heavenly Empire announced the fight against cryptocurrency mining. The BTC rate responded immediately by dropping 12%. With this in mind, many miners have already started to leave the country in search of a better life. Where do you go? Maybe to Russia, because the Krasnoyarsk hydroelectric power station can take many disadvantaged under its wing.

At the end of June, it was announced that all miners had stopped working in China, and on July 7, the People's Bank of China issued a statement on stablecoins: According to the regulator, Bitcoin, other cryptocurrencies and stablecoins threaten the country's financial security and social stability. No wonder: Beijing is planning to actively use the digital yuan, its new CBDC currency, during the Olympic Games next winter. This step is very important for China because it will declare its leadership in the introduction of CBDC to the entire world community, as well as tell its citizens about the great success in the financial sector. By the way, China celebrated the 100th anniversary of its Communist Party on July 1 in a big way. This year seems ideal for

In any case, it is worth noting that such news, although having short-term effects, cannot cause a price decline in the long term. Nature shies away from the void: if some miners go, others will take their place, and even a ban on cryptocurrencies in a single country cannot stop their global spread in the long run. Different countries — different laws, and it's hard to imagine that all regions of the world would decide to ban bitcoin at the same time. Somewhere it is banned but also left behind.

Bitcoin mining tip and its potential impact on the price of BTC

Most recently, Elon Musk and Michael Saylor, the CEO of Microstrategy, met with the leading mining companies in North America. The official agenda included negotiating the rules and developing a regulatory framework for Bitcoin mining, as well as encouraging miners from other countries to switch to “clean” electricity for BTC mining that does not harm the environment. 

As a result of the meeting, it was decided to organize the Bitcoin Mining Council, which will carry out its educational activity in this area. By a strange coincidence, this decision was made on May 24 — shortly after the news of the Chinese authorities' mining ban.

Any thinking person who knows Saylor, Musk, and their modus operandi will immediately suspect them of cartel conspiracy, influencing the price of Bitcoin, and manipulating the market. 

As the CEO of a company with vast BTC reserves, Saylor is directly interested in the cryptocurrency's price surge, and Musk also enjoys his unofficial title of "Master of Coin." These two care little about the environment, and the Council's real goals are very different from what they say.

Most recently, the Bitcoin Mining Council launched its first info intervention: Michael Saylor said that according to his calculations, around 56% of all miners have now switched to renewable energies. In response, he received criticism from the crypto community: netizens expressed dissatisfaction with the fact that the Mining Council did not take into account the deactivated Chinese miners in its report and only included a small number of companies in the calculations.

In other words, the Mining Council has already started its outreach work promoting “green” mining and pushing Bitcoin to the masses.

It seems to us that we will still learn a lot of interesting news about this new organization, but for now, we can only build our theories regarding the Council.