External Factors that Impact The Price of Bitcoin: Influencers & Influences

A deep dive into the external factors, influences and influencers that can impact the price of Bitcoin

How The Price of Bitcoin is Impacted by External Drivers & Forces

by | Nov 12, 2023 | Benefits, Bitcoin, Digital Currency, Why Crypto

Introduction

On 6th September 2023, we published a massive 10K word article titled ‘Detailed Analysis of Projected Bitcoin Prices During 2023, 2024, 2025 & the Impact of the 2024 Halving‘. Intended to explore every aspect relating to Bitcoin’s price movement, we decided to abandon the idea of a “mega article” and break this down into smaller byte-sized articles to cover these aspects.

This guide titled ‘External Factors that Impact The Price of Bitcoin: Influencers & Influences‘ is part of the series focusing specifically on the role external factors can have in shaping the price of Bitcoin.

bitcoin factors and influences

Bitcoin factors and influences

If you would like to jump to one of the articles, please visit below:

Macro, micro and the areas in between 

In our previous articles, we’ve covered ways to look at the price of Bitcoin from a macro point of view:

  • Bitcoin halvings – these important events have historically had the greatest and most consistent impact on the price of Bitcoin and a significant impact on the wider crypto market. Halving events happen roughly every four years, so it’s fair to say, they provide a macro view of things, so when we zoom out fairly common patterns emerge. For more on this, please read our Bitcoin Halvings & Future Bitcoin Price Prediction article here.
  • Bitcoin price models – it’s fair to say that price models and charts like Stock-to-Flow, Lengthening Cycles, and the 200-Week Moving Average provide an even greater macro view. These look at the entire history of Bitcoin’s price and show patterns that help investors project its future potential. For more on this, please read our Bitcoin Price Models Compared & Their Accuracy: Is Bitcoin a Bargain article here.

This article aims to address the external factors, influences and influencers that can have a significant impact on the price of Bitcoin. These external factors often form the micro point of view, but can sometimes overlap into the macro. In the below sections, we’ll cover some of the most significant external events impacting the price of Bitcoin in recent years. 

Examples of external factors that have impacted Bitcoin’s price

The end of COVID-19 lockdowns and hope for a $100K Bitcoin by the end of 2021

Let’s start at the end of 2021.

The process of lifting COVID-19 lockdowns in the UK started in November 2020 and lockdowns officially ended in February 2021. The US and other European countries followed a similar pattern. With this renewed sense of optimism, is it any wonder Bitcoin saw a price increase from around $14K to $50K in May 2021, an increase of almost 260%

Prices could have feasibly continued to increase substantially, with many expecting a price of $100K before the end of 2021. Instead, the price dropped back down to around 30K in July 21.

So, what happened?

Elon Musk no longer allows Bitcoin payments and China crackdown

In May 2021, the cryptocurrency market, particularly Bitcoin was rocked by Tesla’s announcement, led by CEO Elon Musk, that it would suspend vehicle purchases using Bitcoin due to environmental concerns over the increasing use of fossil fuels in Bitcoin mining.

This decision alone caused a 5% drop in Bitcoin’s price shortly after the announcement. Concurrently, China intensified its crackdown on Bitcoin mining.

A combination of these factors pushed Bitcoin’s price down, with it plummeting from $65,000 in April to $35,000 in June 2021.

Retail investors and expectations of a Bitcoin ETF

Then almost by magic, Bitcoin surpassed $65K in November 2021 and reached its current ATH (All-Time High). This wasn’t quite the 100K many expected, but it came closer than ever before. 

This price surge was largely led by younger retail investors favouring Bitcoin as a hedge against inflation and larger institutional investors following suit.

Along with revived interest, adoption and ProShares introducing its futures-based Bitcoin ETF (Exchange Traded Fund) on the New York Stock Exchange, these events led to this phenomenal and somewhat unexpected price increase.

At this point, a 100K Bitcoin price seemed slightly delayed but inevitable and was expected to happen in 2022. 

Russia invades Ukraine, followed by the Terra Luna crash

This one needs no introductions. Much like COIVID-19, Russia’s invasion of Ukraine in February 2022 hit all financial markets hard, including both the stock market and the cryptocurrency market.

If that wasn’t enough, only three months later, one of the world’s largest cryptocurrencies, Terra Luna, started crashing. The Terra blockchain started facing significant challenges when its stablecoin, TerraUSD (UST), began de-peg from the US dollar in May 2022.

This led to a rapid decline in UST’s value, plummeting to 10 cents. Luna, the associated reserve asset cryptocurrency, dropped to nearly zero from its peak of $119.51.

The collapse was attributed to a combination of mass withdrawals from the Anchor Protocol, general investor concerns about cryptocurrencies, and a decline in Bitcoin’s price. As a response to the falling prices, Terraform Labs temporarily halted the Terra blockchain.

Bitcoin was already falling in price but this fuelled by the Ukraine war and the crash of Terra Lune caused Bitcoin to go as low as $16.5K in November 2022, a massive drop of nearly 75%

factors that can cause the price of Bitcoin to crash

Factors that can cause the price of Bitcoin to crash

Bitcoin events of 2023

Well, all things considered, it’s been a fairly uneventful year compared to 2021 and 2022.

The Russian war on Ukraine sadly continues and we’ve seen the Bitcoin price rise from $16.5K to nearly $31K in July 2023.

When writing the original article only six weeks ago, it felt very much like we were seeing a recovery or accumulation phase taking place, a phase where prices start to stabilise and increase. How things can change! In the weeks since that sentiment was made, Bitcoin and the crypto market in general have gone from strength to strength. We’ve seen a huge 36% jump in the price of Bitcoin within the last 30 days bringing it to 37K at the time of editing this article. 

bitcoin market dynamics - bull and bear markets

Bitcoin market dynamics – bull and bear markets

Let’s explore what events have impacted Bitcoin in 2023.

The growth of Bitcoin – November 2022 to July 2023 

The substantial rise in Bitcoin’s value from $16,500 in November 2022 to its one-year high of $31,000 in July 2023 can be attributed to a variety of factors, each playing a key role in influencing its market dynamics. 

Economic indicators and market dynamics: 

2023 saw Bitcoin’s rally reaching a one-year high in July 2023. Historically, such signals have marked the transition from bear to bull markets in the crypto space. Economic indicators such as the declining value of the dollar, a slowdown in inflation, and a halt in rate increases in the United States also fuelled this upswing.

Regulatory environment: 

The changing regulatory landscape globally has significantly influenced Bitcoin’s price trajectory. This regulatory uncertainty has been a driving factor behind the volatile nature of Bitcoin and other cryptocurrencies​.

The Bitcoin halving event and supply constraints: 

Bitcoin’s inherent supply constraint, with a cap of 21 million coins and periodic halving events, has a significant impact on its price. The 2020 halving event, which reduced the rewards for Bitcoin miners, led to a decrease in Bitcoin’s supply, therefore contributing to its price increase in 2023 in anticipation of the next halving event in 2024. This scarcity factor is a fundamental aspect of Bitcoin’s design, ensuring its value over time​​.

Technological advancements: 

Technological advancements within the Bitcoin network have also played a crucial role. Developments such as the Lightning Network and Taproot have enhanced the scalability, speed, and privacy of Bitcoin transactions. These improvements in the network’s efficiency and capability have made Bitcoin an increasingly attractive option to investors​.

Investor behaviour and market sentiment: 

The role of ‘Bitcoin Whales,’ or large-scale investors holding substantial amounts of Bitcoin, cannot be understated. Their investment behaviour often signals market trends and influences other investors’ decisions. A resurgence in their Bitcoin holdings in 2023 was indicative of a growing confidence in the market, further propelling the Bitcoin rally from November 2022 to July 2023​.

The stagnation of Bitcoin – July 2023 to October 2023

Although only five months, it’s been a slow but critical period in the lead-up to the April 2024 Bitcoin halving event. 

In the months of July to October, the price change was uninspiring. We saw a drop from July’s high to $26,851 on October 15th 2023. 

stagnation due to external factors

Bitcoin investors left board and deflated due to stagnation

Then boom, everything took a turn for the better! Let’s explore…

The explosion of Bitcoin to present – The SEC, Ripple & Bitcoin ETF approval expected

In October 2023, Bitcoin saw a significant surge in its value, marking its strongest monthly performance since January. This rally was driven by a mix of speculation and optimism among investors, especially regarding the imminent expected approval of Bitcoin ETFs.

A relative lack of sellers compared to buyers, and a tightening market with fewer sellers willing to part ways with their crypto assets, has led to Bitcoin’s price surging into November 2023. 

But what events led to this dramatic change? Well, the SEC (Securities Exchange Commission) court case against Ripple and other related events have been pivotal in shaping the consensus regarding the approval of a spot Bitcoin ETF.

factors that can cause the price of Bitcoin to soar

Factors that can cause the price of Bitcoin to soar

Here’s a timeline of key events and how they’ve influenced this shift in perspective:

  1. Anticipated end of Ripple case: The Ripple v. SEC case was expected to conclude between August 26 and November 18, 2022. Ripple’s CEO Brad Garlinghouse mentioned at a conference in October 2022 that the lawsuit could end in the first half of 2023, and he was open to a settlement as long as XRP was not classified as a security.

  2. Ripple’s court victory: Ripple achieved a significant victory against the SEC, with Judge Analisa Torres ruling that retail sales of XRP did not constitute securities sales. This led to agreed-upon settlement discussions between the two parties​​.

  3. SEC’s preparedness for trial: The SEC was prepared to attend the trial throughout April, May, and June 2024, with certain unavailable periods in these months.

  4. Judge’s ruling on XRP: On July 13, a U.S. judge ruled that Ripple Labs Inc did not violate federal securities law by selling its XRP token on public exchanges, marking a landmark legal victory.

  5. Key dates for damages talks: Post-court case, the focus shifted to determining the damages Ripple would pay, considering institutional sales of XRP were deemed securities sales. The SEC sought $770 million from these sales, while Ripple aimed to reduce this amount​​​​.

The SEC’s handling of the Ripple case, combined with their previous approval of a futures Bitcoin ETF, has influenced the market’s expectation regarding a spot Bitcoin ETF:

  1. Market growth potential: The Bitcoin spot ETF market is predicted to grow significantly, potentially leading to a substantial appreciation of Bitcoin’s value and an ecosystem-wide bull run.

  2. Advantages of spot ETFs: Spot Bitcoin ETFs offer direct exposure to Bitcoin’s real-time price, resonating with actual market supply and demand. They are seen as more efficient and cost-effective compared to futures-based ETFs, attracting both retail and institutional investors.

  3. Market stability: A shift from futures to spot Bitcoin ETFs could reconfigure market dynamics, enhancing Bitcoin’s stability and reducing volatility. This change is expected to attract long-term, less speculative institutional investments.

  4. Historical impact of ETF approvals: Historically, the approval of ETFs in various asset classes has led to an increase in asset prices. A Bitcoin ETF could unlock liquidity and propel Bitcoin to new price highs, sustained by a more diverse investor base.

  5. Sentiment boost: The approval of Bitcoin ETFs is anticipated to boost market sentiment, encouraging buying in the short and long term.

The developments in the SEC’s case against Ripple, along with the market’s response to the SEC’s approval of a futures Bitcoin ETF, have collectively contributed to a growing consensus that the approval of a spot Bitcoin ETF is imminent. 

What other external factors could impact the price of Bitcoin?

At the time of writing this originally in September 2023, it felt like the SEC could be one of the biggest obstacles to Bitcoin’s price potential. Two months later this seems far less like and far more likely that the imminent approval of a Bitcoin spot ETF will propel prices. 

So, surely that means we’re safe and can all look forward to good times ahead?

The Ukraine war still looms

 Taking a very extreme view of external factors, the one that still looms over the world for much greater reasons than the price of Bitcoin is the Ukraine war. If we look at how this could play out, there are two possibilities at each end of the spectrum: 

  1. The Ukraine war worsens and spreads or another war breaks out – this would undoubtedly lead to a further Bitcoin price drop.
  2. The Ukraine war comes to an end – this would have the opposite effect.

There are of course other possibilities, but these are the main two.

External influences and manipulation, including The SEC, Ripple, Musk, and more

When seeing how easily the Bitcoin price can be pushed upwards or downwards as the result of something relatively minor like Tesla (a.k.a. Musk) championing Bitcoin and accepting BTC payments, or reversing the decision, it’s quite clear how fragile the price is.

It’s also clear how much influence a few key players like Musk can have over Bitcoin and the entire crypto market.

It’s not just Musk though. As mentioned above, we’ve seen the impact that the SEC and other players within the crypto industry have on the price of Bitcoin and other cryptocurrencies. 

In June 2023, the SEC sued Coinbase, alleging that it operated as an unregistered exchange and broker. However, the ruling in the Ripple case provided Coinbase with a renewed perspective on their defence. Specifically, the Ripple ruling drew a distinction between institutional sales of XRP, which were found to be in violation of securities laws, and other types of sales.

In the most recent landmark event, the U.S. court ruled against the SEC’s previous denial of Grayscale’s spot Bitcoin ETF application. This decision not only marked a significant victory for Grayscale but also hinted at a potential shift in the regulatory stance, paving the way for the expected introduction of the first Bitcoin ETF.

The ruling doesn’t order the SEC to grant approval for the application, but it significantly constrains the SEC’s ability to dismiss it again.

Although the SEC had previously voiced worries about potential market manipulation, the court’s verdict suggests we’re entering an era of greater flexibility regarding crypto and the potential acceptance of crypto ETFs for Bitcoin and Ethereum.

So what next for Bitcoin in 2024? 

We still have a bit more time in 2023 with November and December remaining, but let’s look ahead to 2024 and what might happen.

The Bitcoin halving is pretty much guaranteed to happen in 2024. Logically, we would expect this to have a positive impact on price. If we go by history, Bitcoin’s price has increased consistently following each halving event. More on this here.

It seems clear that investors are quietly accumulating crypto assets, in particular Bitcoin, at lower prices in anticipation of potential price increases.

However, outside of the halving event, what other external factors can we expect to influence Bitcoin’s price in 2024? 

Bitcoin and Ethereum ETF approvals

With Grayscale’s court victory against the SEC and other recent events, it’s widely expected the first Bitcoin spot ETFs will be approved very soon. If not in 2023, then in 2024, it’s anticipated that Grescale’s Bitcoin ETF will be first and others will follow, including BlackRock’s Bitcoin ETF. The approval of a Bitcoin ETF will only aim to increase Bitcoin’s price even further than might normally have been predicted in line with the halving event.

Interest rates level off

The Bitcoin price is directly impacted by macroeconomic events. For example, statements from Federal Reserve Chairman Jerome Powell about aggressive interest rate policies can influence the crypto market and prices in both directions. However, with inflation rates dropping in the UK and US, it seems unlikely that we’ll see further aggressive interest rate hikes.

Retail and institutional interests grow

With exchange apps and online services making it easier than ever to invest in crypto, retail investors are likely to further fuel any bull market following the halving event. Large institutions pushing for Bitcoin financial instruments could potentially spark a bull run as well.

Adoption and acceptance in countries

At present, El Salvador and the Central African Republic (CAR) both use Bitcoin as a legal tender, but more countries adopting Bitcoin as legal tender in 2024 could have a significant impact on price. Not only that, but countries legalising crypto or providing new rulings to allow the trading of crypto would aid price increases, with Hong Kong being one of the latest to open up retail trading to retail investors.

Elon Musk – ‘X’ (Everything App)

Elon Musk has had a profound impact on the crypto market. His mentions and tweets about Bitcoin, Dogecoin and other cryptocurrencies have been known to cause significant price fluctuations.

Even the rebranding of Twitter as ‘X’ caused an unrelated cryptocurrency to rise in price XRP, simply based on speculation due to the ‘X’ in the XRP.

More than this, there are strong indications and rumours suggesting that Elon Musk’s “Everything App”, X (formerly known as Twitter), is moving towards becoming a platform that offers crypto-related services, including payments.

Official news on this is limited but it definitely feels as though this will happen and is being quietly timed to cause Bitcoin to “go to the moon” potentially with the next halving.

Mark Zuckerberg and more additional crypto products

Mark Zuckerberg, the founder of Facebook, has shown interest in the crypto space. He has had a semi-serious war of words with Elon Musk, indicating the competitive nature of tech giants in the crypto arena. The rivalry and potential release of new crypto products could help to increase mainstream adoption and drive up Bitcoin prices.

AI and its relation to tech stocks and crypto

Unless you’ve been living in a cave, you’ll have heard about how popular AI has become in 2023, with the release of OpenAI’s ChatGPT product and companies like Microsoft with Bing Chat, Google’s Bard, Adobe’s Firefly AI engine, and others all trying to catch up and dominate the space.

The excitement and hype around generative AI has led to tech stocks notably NVIDIA going sky-high shooting up from $140 in December 2022 to $493 at the end of August 2023. That’s a crazy 252% increase in less than 12 months.

There are good reasons for NVIDIA’s surge but crypto is no stranger to AI either. As more innovative blockchain technologies come onto the scene, it’s no surprise that some of these are AI-related.  

Here are the 10 largest AI crypto projects by market cap, according to CoinMarketCap:

  1. The Graph (GRT)
  2. Injective (INJ)
  3. Render Token (RNDR)
  4. SingularityNET (AGIX)
  5. Oasis Network (ROSE)
  6. Ocean Protocol (OCEAN)
  7. ai (FET)
  8. OriginTrail (TRAC)
  9. inSure DeFi (SURE)
  10. dKargo (DKA)

It’s clear that AI is significantly impacting the crypto and blockchain sector by merging the capabilities of artificial intelligence with blockchain technology. This fusion enhances security, optimises transaction efficiency, and offers innovative solutions for various industries, from finance to supply chains. AI-driven crypto projects are pushing the boundaries of decentralised finance (DE-FI), and presenting lucrative opportunities for investors.

Although not onboarding currently, Render (RNDR) is a particularly interesting project within the crypto mining space. Built on the Polygon blockchain and using ERC-20 token, the Render Network provides a shared GPU rendering infrastructure. Using Render, individuals can lease out their idle GPU resources for complex AI-driven rendering tasks, such as animations, motion graphics, visual effects, and miners get paid in RNDR tokens for providing the service. This decentralised approach optimises AI computations, making them more efficient and accessible.

Coming back to OpenAI, in the time since writing this article originally, we’ve learned about the WLD (Worldcoin) token created by founder, Sam Altman.

With the growth of AI and its impact on AI-related companies and tech stocks, we can only expect this to further bolster the price of crypto in the coming year, especially as more AI-related blockchain projects and use cases are announced.

Downsides, potential exchange collapses, corruption and CBDCs

On the potential downside, potential collapses such as the collapse of Terra Lune and FTX can send shockwaves through the crypto market, leading to fears and price drops.

With the SEC failing in its cases against the likes of Ripple and Greyscale, it seems less likely that they will be causing any major downside to impact the Bitcoin halving.

The main threats most likely come from corruption within the industry and potential collapses of exchanges causing fear of crypto.

While some governments and even banks are accumulating Bitcoin as a reserve asset, others are exploring the creation of Central Bank Digital Currencies (CBDCs) as an alternative to traditional cryptocurrencies.

CBDCs, as covered here, are digital versions of a country’s national currency and are backed by the central bank. They aim to combine the benefits of digital currencies with the stability and regulatory oversight of traditional currencies.

While we feel these are doomed to fail, the introduction of CBDCs could deter those interested in potentially investing in Bitcoin and other cryptocurrencies.

Wrapping up: external factors impacting Bitcoin

This article has dissected the various external factors impacting Bitcoin’s price movement. From global economic shifts, regulatory changes, to influential figures and events, each element plays a pivotal role in the cryptocurrency’s valuation. As we have seen, Bitcoin’s journey is far from linear, marked by peaks, troughs, and unexpected turns.

The years 2021 to 2023, while only a snippet of Bitcoin’s history, have been marked with unique challenges and opportunities. The end of the COVID-19 lockdowns, Elon Musk’s influence, China’s crackdown on Bitcoin mining, and the dramatic crash of Terra Luna, all shaped Bitcoin’s volatile trajectory. Meanwhile, the Russian-Ukraine conflict continues to cast a shadow over global financial markets, including cryptocurrencies.

Looking ahead to 2024, several factors are likely to influence Bitcoin’s price. The much-anticipated Bitcoin halving is expected to play a crucial role, historically leading to price increases. Additionally, the potential approval of Bitcoin spot ETFs, particularly in the wake of Grayscale’s legal victories, could provide a significant boost.

Shifts in macroeconomic policies, such as interest rate changes, along with the growing adoption and acceptance of Bitcoin globally, are also key drivers. The increasing integration of AI in blockchain and cryptocurrency, as evidenced by projects like Render and more recently, OpenAI’s Worldcoin, and the evolving regulatory landscape, exemplified by the SEC’s stance on crypto ETFs, will further shape Bitcoin’s future. However, it’s crucial to be aware of the potential risks. Escalations in the Ukraine war, exchange collapses, corruption within the crypto industry, and the development of Central Bank Digital Currencies (CBDCs) could all pose challenges to Bitcoin’s growth.

In essence, Bitcoin’s path is influenced by a wide range of external factors, influences and influencers, each playing their own role in impacting the price of Bitcoin. The future of Bitcoin, while promising, remains a journey marked by complexity and unpredictability.



Last modified on: July 20, 2024

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