What makes Bitcoin’s price go up?

Factors that influence bitcoin's price 📊

  • 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.

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What factors can positively impact Bitcoin’s price? 🤷‍♂️

Bitcoin is renowned for being a highly volatile asset.

It’s not unprecedented for BTC’s price to move 10% or more in a single day.

The well-known quote “history never repeats itself, but it does often rhyme” applies to Bitcoin as well. 

While Bitcoin’s past is no guarantee of its future, people regularly study the events that took place leading up to Bitcoin price increases in the past. They do this in an effort to understand how the market may react if or when similar events occur in the future.

Below are a few events that many feel have influenced Bitcoin price increases in the past.

Understanding the different factors that can positively influence demand for Bitcoin may be helpful for new traders.

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Institutional adoption and activity 🏢

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.

Social media sentiment 📱

In recent years, YouTube and X have emerged as popular public forums for circulating crypto-based news and igniting new trends.

In late 2020, a “laser eyes” trend spread throughout the crypto community on X. The movement involved crypto enthusiasts adding laser beam eyes to their profile pictures to signal their goal of driving Bitcoin above $100,000.

While this may have contributed to a price rally from $10,000 in October 2020 to over $60,000 in March 2021, BTC ultimately failed to reach this 6-figure target.

Other social media-driven FOMO (fear of missing out) events can result from the posts of highly influential figures. Bitcoin rallied 20% after Elon Musk simply added the word “bitcoin” to his X bio in January 2021.

Sentiment across social media channels plays an important role in driving the demand for Bitcoin. As participants in the space share their opinions and analysis of past events and future outlook of Bitcoin, others take notice. 

During times when the sentiment for Bitcoin is particularly favorable on social media, the price can be driven higher because of higher demand stemming from a favorable outlook for Bitcoin.

Macroeconomic and geopolitical factors 🌍

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.

Regulations and legal changes 👩‍⚖️

While some may think that regulatory changes could carry a negative connotation in the crypto markets, history is full of instances when new policies have positively affected BTC prices.

A 2020 report by the Federal Reserve Bank of Dallas presented evidence that clear regulatory cryptocurrency frameworks often resulted in rising Bitcoin prices. Their report states, 

“We [found] that favorable [Bitcoin regulatory] events coincide on average with a 0.33% return in the 120 minutes around the events… and a 1.52% return in the 24-hour window around them…”

One such example of this happening in practice took place in Hong Kong in 2023. At that time, the Hong Kong Securities and Futures Commission announced new changes to their crypto trading regulations. Among the changes included allowing licensed platforms to serve retail traders. On the back of the news that bitcoin would now become more accessible to millions of people living in the region, BTC’s prices increased by 2%.

While some might see regulation on an emerging industry as an attempt to stifle growth, many others feel increased regulation further legitimizes crypto. 

Rather than perceiving regulation as a barrier, thoughtful and carefully tailored regulation can provide clear guidance for how the industry can continue to grow and prosper across the world. Clearly defined rules and regulations can provide investors with new confidence. This can help to increase demand and therefore price of bitcoin.

Trading volume 🔉

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%.

Technical patterns 🧩

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.

Bitcoin network improvements 👍

The Bitcoin protocol rarely experiences any changes that meaningfully alter how the protocol operates. That’s because any proposed change must undergo rigorous public reviews and be supported by the majority of the network before they can be implemented.

This process can take many years before a major upgrade receives the support of the network and makes it into Bitcoin’s source code. 

That being said, the effects of these scarce changes to the network can have a favorable impact on bitcoin prices — when they finally happen.

An example in recent years is the Bitcoin Taproot upgrade. First proposed by Bitcoin developer Greg Maxwell in 2018 and activated in 2021, Taproot introduced new features to enhance the network’s privacy and efficiency. 

You can learn more about how the Taproot upgrade improved the privacy and efficiency of Bitcoin in our Kraken Learn Center article What is Taproot?

The arrival of Taproot was highly anticipated by the broader community. In the run up to its implementation, BTC’s prices rallied by over 130% from $29k to $69k.

During the rare instances when changes come to the Bitcoin blockchain that improve its functionality, traders may see greater potential for the future of Bitcoin. This can in turn contribute to driving demand for Bitcoin higher, which can result in a higher price as well.

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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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