A comprehensive guide to the factors that could influence bitcoin’s value in the short, medium and long term.
The world’s best-known and most widely traded cryptocurrency, bitcoin (BTC) made worldwide headlines in 2017 when it experienced phenomenal growth. Now, as awareness of cryptocurrencies continues to spread, traders and HODLers alike are hungry for accurate forecasts of where bitcoin’s price is headed in the weeks, months and years ahead.
However, there are myriad factors that can influence the price of bitcoin, so let’s take a closer look at what those factors are and what they could mean for bitcoin’s value in the future.
|Launch date||9 January 2009|
Bitcoin price prediction
If you’ve followed any of the media coverage surrounding the price of bitcoin in recent months, you’ll probably be well aware that cryptocurrencies are highly volatile. The price of bitcoin is influenced by a variety of factors and can rise or fall sharply in a short space of time, so you’ll need to carefully consider all the issues that could potentially lead to growth or decline in the currency’s value.
If you’re thinking of buying bitcoin, make sure you consider the following:
What could drive bitcoin’s growth?
- Limited supply. The total supply of bitcoin is limited to 21 million, and at the time of writing (26/02/2018) there were already 16,886,712 BTC in circulation. This is an important factor to consider when determining the supply/demand equation and the influence it could have on price.
- Prestige and credibility. Mention the word “cryptocurrency” and the first word that comes to many minds will be bitcoin. Launched in 2009, bitcoin has been around a long time (in crypto terms) and is the most widely recognised digital currency.
- Media hype. If bitcoin goes on another price surge like it did in 2017, expect it to be extensively covered in the media. Positive media coverage can potentially lead to increased demand for a particular currency.
- Ease of access. As the most popular cryptocurrency (in terms of trading volume) in the world, bitcoin can be traded on cryptocurrency exchanges all over the world. This makes it easy to access and also increases its credibility.
- Increasing acceptance. If the number of businesses and service providers that accept bitcoin as payment increases, this could increase demand for the currency. Increased interest from institutional investors, as hedge funds and other financial services providers start offering bitcoin trading options, could also drive up demand.
- Upcoming tech developments. There is a range of upcoming tech upgrades and proposals designed to overcome bitcoin’s scalability issues. The first of those was the introduction of SegWit, designed to improve transaction times and lower fees, while the second will be the rollout of the Lightning Network, a relay network that aims to further reduce fees and speed up transaction times. If successful, this could vastly improve bitcoin’s functionality.
What could hold bitcoin back?
- Scalability problems. Bitcoin has been criticised for its increasingly slow transaction times and high transaction fees. These are major factors that could influence demand for the currency. However, if these problems can be overcome, demand for bitcoin could potentially increase.
- Mining concerns. As bitcoin mining becomes increasingly difficult and expensive, this could see some miners switch their attention to other, more profitable coins.
- Market competition. The cryptocurrency market is becoming increasingly crowded as a wide variety of altcoins compete for market share. While many of those coins aren’t necessarily direct competitors for bitcoin, they could still detract from bitcoin’s overall market dominance.
- Threat of increased regulation. Cryptocurrency is still in its infancy and there are regular media reports of governments around the world introducing tighter legislation targeting digital currencies. These announcements can have an impact on the price of bitcoin – for example, bitcoin’s value dropped almost 20% in January 2018 amidst rumours of a Chinese government crackdown on cryptocurrencies.
- Negative news. While positive media stories can potentially drive values up, negative media stories, such as those reporting bitcoin bubbles, can also have an effect on prices.
- Lack of cryptocurrency adoption. Cryptocurrencies are yet to achieve widespread adoption. While there are plenty of projects working on bringing cryptos to the mainstream, a lack of acceptance of digital currencies across the board could potentially affect values.
- Community disagreements. The governance of bitcoin can also influence its price. For example, disagreements about changes or upgrades to bitcoin’s underlying technology can cause infighting, potentially leading to hard forks like the one that created Bitcoin Cash (BCH) in August 2017.
Where to buy bitcoin
What’s coming up in bitcoin’s roadmap
Bitcoin is an open-source project and, as such, doesn’t have an official roadmap. However, there are a few key challenges and developments coming up for bitcoin in the months ahead, headlined by attempts to solve the scalability problem. Following the cancelled SegWit2x upgrade of November 2017, followed by the bitcoin SegWit2x (B2X) hard fork, there are several proposals for solving bitcoin’s increasing transaction times and fees.
One of the most important is the Lightning Network. Currently in the testing stage, the Lightning Network is designed to solve bitcoin’s problems of slow transaction speeds and high fees. A payment network layered on top of the bitcoin blockchain, Lightning Network could potentially have a big influence on the usability of bitcoin, but the exact effects it will have remain to be seen.
The cryptocurrency sphere is crowded and becoming increasingly competitive all the time. If you’re thinking of buying bitcoin, it’s important to be aware of the influences (both positive and negative) that the actions of competitors could have on the price of bitcoin. Some of the main competitors to consider include:
- Ethereum (ETH). Launched in 2014, Ethereum is a decentralised platform where developers can build and deploy applications. Ether is used to pay transaction fees and services, and at the time of writing (26/02/2018) was the second largest cryptocurrency by market capitalisation.
- Ripple (XRP). Ripple offers both a payment network (RippleNet) and a cryptocurrency (XRP), and it aims to allow banks and payment providers to send fast and secure transactions around the world. It’s one of the top five cryptocurrencies in terms of market capitalisation, and you can find out more about how it stacks up in our bitcoin vs Ripple comparison.
- Bitcoin Cash (BCH). Created in August 2017 following a hard fork of bitcoin, BCH is designed to offer faster and cheaper transactions than BTC. It has since cemented its place as one of the top 10 currencies by market capitalisation.
- Dash (DASH). Built with a focus on fast and anonymous transactions, Dash is widely traded on a variety of cryptocurrency exchanges.
- Litecoin (LTC). Commonly referred to as “the silver to bitcoin’s gold”, Litecoin was founded in 2011 and designed to provide faster transactions than bitcoin. It’s also one of the top 10 cryptocurrencies by market capitalisation at the time of writing.
Beyond 2021: What does the future hold for bitcoin?
Cryptocurrencies are highly speculative, so any predictions of bitcoin’s future value should always be taken with a very large grain of salt. That said, traders and crypto enthusiasts all around the world will be watching what happens to bitcoin with a high level of interest.
As the best-known and most popular (in terms of trading volume) of all cryptocurrencies, bitcoin has the enviable position of being the digital currency with the most credibility and widespread recognition. If cryptocurrencies can continue their push into the mainstream, bitcoin is well placed to take advantage of any increased consumer demand.
However, it does face a few key threats. The biggest of those currently is the problem of scalability, which is one key area where some competing cryptocurrencies are well ahead of bitcoin. The threat of increased regulation of cryptocurrency markets by governments around the world should also not be underestimated, as legal and tax changes could have a significant impact on bitcoin’s value.
The next 12 months promise to be a fascinating period as bitcoin, and the cryptocurrency market as a whole, continues to mature.
If you’re considering buying bitcoin (BTC), the most important points to remember are to do your research and to familiarise yourself with all the risks involved. Though this digital currency has delivered substantial returns to its early adopters, that’s no guarantee of future growth.
If cryptocurrencies can continue their push into the mainstream and achieve widespread acceptance, not only among consumers but also from governments around the world, this could mean good things for bitcoin. And if the scalability issues facing the bitcoin blockchain can be successfully overcome, there seems to be potential for future growth. As an example, in January 2018, hedge fund sentiment on bitcoin went bullish for the first time since the Commodity Futures Trading Commission (CFTC) began publishing reports on bitcoin positions.
However, don’t forget that the cryptocurrency sphere is increasingly crowded, and bitcoin is sure to face plenty of threats to its title as the world’s number-one cryptocurrency from a host of well-organised and professionally backed competitors. Watch this space to see how it all unfolds.