Bitcoin (CRYPTO: BTC) has risen nearly 40% in the past six months and may rise even higher in the near future. This trend is not merely a random fluctuation in the asset's price. There are at least three factors driving the currency's price increase. All are likely to continue, so let's examine each factor.
1. Reflective Dynamics
Many investors prefer to think that the value of an asset is determined by its fundamental properties rather than the erratic emotions of other investors. This is a good idea and supports all financial models. But it is a mistake, especially when it comes to a well-known asset like Bitcoin.
Reflection is a financial theory that describes how the price of an asset and its fundamental factors interact with each other in a feedback loop: Investor confidence affects prices, price fluctuations alter fundamental factors, and the changed fundamentals then confirm or weaken initial beliefs, often amplifying the cycle. This loop operates most persistently when the fundamental properties of the investment are solid; otherwise, the process might resemble a Ponzi scheme, which deters investors rather than attracting them.
Bitcoin is a prime example of reflexivity, largely because like all other cryptocurrencies, it lacks fundamental factors to use in traditional pricing models. Instead, belief drives its price up, the price attracts believers, they persist and hope for even higher prices, and the self-fulfilling cycle continues. Thus, one of the biggest reasons Bitcoin is surging right now is that it has surged before. And one of the biggest reasons it will continue to surge in the near future is that it is surging right now.
Note that reflexivity also works in reverse. A correct sequence of adverse economic catalysts or new regulations could cause Bitcoin's price to drop sharply, and over a sufficiently long period, this will happen at some point. This does not diminish the long-term investment thesis of this currency, but it is a reason to buy cautiously when prices rise rapidly.
2. New government policies seem closer to reality than ever
We are currently at the peak of global government Bitcoin policy.
The Trump administration recently issued an executive order calling for the establishment of a strategic Bitcoin reserve fund. Although it has yet to be implemented and is not connected to any operational mechanism for execution, if implemented as planned, it would make the United States a major Bitcoin-holding nation simply because it would be required to retain coins obtained through asset seizures.
And this will have a direct impact on the currency's price over time, as it means that more and more supply will be withheld from the market for an indefinite period, or at least until a new administration changes policy.
Other countries like the Czech Republic, Russia, and Japan are studying, discussing, and considering implementing similar policies. Even if none of them implement anything in the next few years, it is certain that other countries will follow suit, at least thinking about the issue, and some countries may eventually implement it.
Major players like China have yet to announce any changes to their plans, but they have publicly discussed what new policies might look like. As a result, many investors have begun interpreting potential future policy changes (though not guaranteed) as strong catalysts worthy of getting ahead by buying more Bitcoin right now. It is hard to imagine an anti-cryptocurrency government in China today compared to just a few years ago.
In short, the long winter of governments trying to ban Bitcoin and other cryptocurrencies is coming to an end. This is attracting a lot of institutional investors and other large buyers, as they want to invest in an asset that is witnessing its single largest risk decrease, and it is convincing smaller investors to buy for similar reasons.
3. Whales are buying, and new whales are approaching the scene
On April 28, the Bitcoin Strategy fund announced that it had purchased $1.4 billion in coins the previous week, bringing their total holdings to an astonishing over $52 billion. This is not the first time they have made a massive purchase, nor will it be the last. And they are not the only whales accumulating coins right now.
In particular, companies are eager to buy Bitcoin to hold it on their balance sheets. Megacap businesses like Tesla and other well-known companies are now holders. While it is true that purchases made by large capital holders can change Bitcoin's price on a given day, the larger implication is that they would prefer to hold onto their money and then borrow fiat, using the value as collateral rather than selling it. Therefore, there will not be much money supply for future buyers.
