Why Does Bitcoin Price Change
This past week has been a roller coaster for Bitcoin, as it dropped to a new recent low, as well as stretched for a new high. But why does Bitcoin price change so much anyway?
Bitcoin is a unique commodity, and its price is based solely on the laws of supply and demand, which is why it changes so much. Keep reading to learn more about the minute details that cause Bitcoin price fluctuations, so you can better predict future Bitcoin price trends.
1. Bitcoin is Ruled by the Law of Supply and Demand
As we mentioned above, Bitcoin is ruled by the law of supply and demand. This means that though external events may cause changes in supply and demand, the price of Bitcoin will only react to the supply and demand changes.
Basically, when more people buy Bitcoin and the supply goes down, the price goes up. When a lot of people sell their Bitcoin and the supply increases, the price then drops.
This, of course, is a very basic reflection of how Bitcoin works because it ignores the economic changes that lead to Bitcoin supply changes. But it is the base reason why the price changes so much—because the supply changes constantly.
When this article was written on June 10th, Bitcoin exchanges were reporting historic low liquidity—meaning Bitcoin supply is currently low and that is why the price is climbing once more.
2. Government Policy
Although the government can’t control the supply of Bitcoin as they can fiat money by utilizing quantitative easing, they can attempt to control the supply with policy.
For example, near the end of 2024, individuals everywhere purchased Bitcoin because Trump was elected and they knew he would promote policies that were more positive toward cryptocurrency. If the opposite had happened, people may have been scared to buy Bitcoin, increasing the supply and causing the price to drop.
We do need to point out that the supply changes to Bitcoin in 2024 were speculative, meaning they happened before Trump even took office, and these shifts can be difficult, if not impossible, to predict. This is because they rely on public sentiment and speculation rather than on actually established policies.
But, we bring this up because government policies, which are 100% negative, such as the China ban, can have a very negative effect on coins like Bitcoin as individuals liquidate their positions to comply with local law.
3. Economic Policy
Unfortunately, economic policy also plays a factor in Bitcoin prices, as it isn’t fully integrated into society yet. This means that most people purchase it as something extra, but not something to actually use.
Therefore, when times become more difficult economically, people may scale back on buying cryptocurrency as they would almost any other investment. That being said, Bitcoin is also used as a hedge against inflation, meaning sometimes more wealthy individuals may purchase it during an economic downturn.
Honestly, unless you have a PHD in economic policy, you can’t use it to predict Bitcoin prices. You are better off just sticking with government policy and supply and demand, but it is something to be aware of as the US begins to enter rocky economic times due to increased tariffs.
4. Media Coverage
Just like any other product that is bought and sold, media coverage does have some effect on Bitcoin’s price. When it first launched in 2009, it was easy to see rises in prices as demand increased after Bitcoin’s appearance in the media. These appearances were typically strong positive or strong negative as Bitcoin was slowly introduced to the world.
That has changed now, though, and while there still may be a spike in Bitcoin prices due to media like Trump’s Federal Bitcoin reserve, it isn’t as easy to spot as it once was. We believe this is because Americans have grown used to seeing Bitcoin in the media, and it is no longer sensationalized like it used to be.
Although we don’t think Bitcoin media coverage is really a big indicator of Bitcoin’s price due to desensitization, we do think this is still something important to mention, as it does affect a number of other cryptocurrencies.
5. Cost of Production
Something we often see glossed over is the fact that Bitcoin was designed to be deflationary in that the cost to produce it will only increase. Therefore, based on basic economics, you can assume the price of Bitcoin, at a baseline, will only rise with the cost of production.
Obviously, this isn’t 100% true because Bitcoin price does fluctuate. But notice how the price seems to always stay above the cost to produce it—this is because the individuals mining Bitcoin don’t want to sell their product at a loss. Of course, if the demand were to drop to 0 one day, this could cause a whole host of other problems, but for now, the cost of Bitcoin production does serve as a bit of a price floor, though the price is often fluctuating above that floor.
6. Competitor Prices
We had to add this because it is part of the economic discussion, though it doesn’t specifically apply to Bitcoin. Most products can only hold a certain price because of the market and the number of competitors they face. And, when price fluctuations happen, it typically occurs when a new competitor enters the market.
With Bitcoin, there currently is no competitor that comes close to the benefits and fame of this coin. Thus, it isn’t really something which currently affects price, BUT it could in the future, if a competitor were able to match it and enter the market.
We, personally, do not think that will ever happen—but like anything in life, you never know.
Overall, it is nearly impossible to predict Bitcoin prices and when and why they will change. But, if you want to try your hand at it, we recommend focusing on supply and demand as well as government policies—as these seem to have the most effect.
