What makes Bitcoin’s price go up?

• Bitcoin’s price has a well-documented history of being a highly volatile.

• Many factors can cause its price to rise sharply, including social media sentiment, improvements to the Bitcoin network and the emergence of new financial products centering around Bitcoin.

• Understanding how specific market events influence demand for bitcoin can give traders a better insight into why bitcoin’s price is constantly changing.

Bitcoin’s price is driven by how the market values its functionality. 

In economics, price comes from a relationship between supply and demand. As the amount of an asset that exists (supply) changes and the amount of people looking to purchase that asset (demand) changes, the price of the asset also changes to reflect this relationship.

But, it is important to remember that Bitcoin has a clearly defined and unchangeable maximum supply of 21 million coins that will ever exist. You can learn more about this fixed supply and the significance of it to bitcoin in our Kraken Learn Center article, How many bitcoin are there?

Because bitcoin’s supply is clearly defined, changes in Bitcoin’s price are largely driven by changes in demand for Bitcoin and the functionality it offers.

During times when there is a large demand for the functionality that Bitcoin offers, its price can increase. However, it’s important to remember that the opposite is also true.

That’s why you’ll also want to check out our article, What makes Bitcoin’s price go down?

For some, taking a closer look at the various factors that can cause an increase in demand for Bitcoin in the first place can help demystify why Bitcoin’s price may increase.

Increases in institutional adoption and the approval of regulated products have historically been bullish catalysts for bitcoin’s price. 

While many initally called the 2024 spot Bitcoin ETF approval in the United States a “sell the news” event, previous events aimed at facilitating the institutional adoption of Bitcoin have largely contributed to increases in demand and therefore price as well.

On February 19, 2021, the Evolve Bitcoin ETF debuted on the Toronto Stock Exchange (TSX). This opened Bitcoin to a new group of investors that previously may not have been able to access bitcoin for various reasons. In the 24 hours after the ETF’s debut, BTC  prices rose 9%. Later that year, the launch of the ProShares BITO futures ETF on October 18, 2021 also helped facilitate new demand for bitcoin and contributed to a price rally of over 8% in two days.

In addition to these trading products, several public companies have triggered bullish price rallies after publicly disclosing their investments in Bitcoin.

In August 2020, Michael Saylor became the first CEO of a publicly traded company (besides BTC mining companies) to announce that their company, Microstrategy, had purchased BTC as a treasury asset. 

In the same year, Block (formerly known as Square) announced that they had bought $50 million in BTC. This trend continued, with household names like Tesla following suit in 2021. They publicly disclosed a staggering $1.5 billion BTC investment. This breaking news fuelled an immediate rally, lifting BTC prices over 19%.

History has shown that large spikes in demand for bitcoin from influential firms has contributed to a rise in the price of Bitcoin. As large investors entered the space, they drove a demand for the finite supply of Bitcoin higher. This increased demand may have helped drive the price of Bitcoin higher as well.

Many crypto holders tout bitcoin as being “digital gold” believing that the asset will hold its value over time because new units cannot be created at will like government-issued currencies. 

Although governments can deploy different policies to push or pull their currency in different directions, Bitcoin operates on a fixed set of clearly defined rules that can not be modified in this way.

Due to its low inflation rate and apolitical nature, BTC has seen demand from many countries battling consistent currency debasement via inflation.

Some notable examples of countries that have suffered from high inflation include Nigeria, Turkey, Argentina, and Venezuela.

Many people from these countries see the scarcity of Bitcoin as a safe haven from the inflation of their local currency. As these individuals drive higher demand for Bitcoin, they can contribute to an increased Bitcoin price as well. 

You can learn more about bitcoin’s scarcity and the important role it plays with our article How many bitcoin are there? Bitcoin supply explained

The fact that no government controls BTC makes it an attractive alternative to central bank controlled currencies for many.

Developing nations like El Salvador and the Central African Republic were among the first to officially declare BTC legal tender. Some experts have stated these moves aim to reduce the number of unbanked citizens and the country’s dependency on foreign currencies.

Around the world, many citizens as well as entire governments are increasing their demand for Bitcoin due to its low and predictable inflation rate. Their increased demand for Bitcoin and the functionality it delivers have in turn helped contribute to an increase in the price of BTC as well.

In crypto futures trading, when the market moves sharply against a large number of traders, widespread liquidations can occur. 

For traders going short (betting prices will fall lower), sudden spikes in bitcoin prices can cause a “short squeeze.”

Here, trading platforms may liquidate many short traders simultaneously. To recuperate losses, short-squeezed traders may decide to buy Bitcoin on the spot market to settle their short futures contracts. This helps contribute to an increase in demand for BTC, which can help to drive up its price.

In the chart below, the red lines measure the total daily amount of short liquidations. As you can see, the larger spikes generally coincide with strong BTC rallies. 

Here are some examples recorded over three months during 2023:

• October 15 – $136.58m short liquidations, BTC up 5%.

• October 22 – $275.45m short liquidations, BTC up 10%.

• November 8 – $272.52m short liquidations, BTC up 3% (also lots of long liquidations).

• December 3 – $203.45m short liquidations, BTC up 5%.

• December 4 – $158.07m short liquidations, BTC up 5%.

Another trading-related demand driver for BTC is the perception of its historical price patterns and trends. When traders notice a repeat of events or patterns that took place before Bitcoin price rallies in the past, they may increase demand for Bitcoin and drive the price higher as a  result.

Technical analysis is commonly used in capital markets to try and predict future price movements based on current trends. When various bullish chart patterns form on the BTC chart, particularly over longer time frames, it can cause excitement to spread among prospective Bitcoin buyers. This anticipation may lead to increased demand and a positive breakout to higher prices.

Golden crosses are a popular bullish chart pattern that can often induce excitement and anticipation of an improving market. Since 2013, ten golden crosses have appeared on the daily BTC price chart. Of those ten, seven golden crosses (70%) have been followed by a bull market.

Predicting how the price will react to any news in the future shouldn’t be your sole factor in any trading decision. The market for BTC, and crypto in general, is still in its early years and subject to regular volatility. There’s never any guarantee that the price will react to an event the same way as it did in the past.

Although bitcoin's price can be volatile, understanding the factors that influence these price changes can help prepare you fas you get started in the digital asset economy.

With a clearer understanding of the major catalysts that can impact Bitcoin’s price, are you now ready to get started with as little as $10? 

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