Since its launch, Bitcoin seems to create a new question for each one  it answers. Questions such as “Is the system viable?” or “Is It a Ponzi scheme?” have been answered.  Often still, with any increase in price, and the subsequent correction, community argued that the price reached its maximum. In the wild west of cryptocurrencies forecasts are plentiful, and range from complete devaluation of the currency, up to 100000 USD per Bitcoin. One thing was certain; nobody was sure what influenced the Bitcoin price

Recently, the academic community started paying more attention to Bitcoin. Several research papers, which focus on different aspects of Bitcoin protocol and the effect on the economy it has, were published. Unlike most of the internet sources, standard academic research paper has a clearly defined method and conclusions derived from data analysis.  Bitcoin community is ripe with uncertainty and discussion about potential price drivers. Therefore, it does not surprise that there are papers devoted to this topic.

Ladislav Kristouflek from Charles University in Prague analyzed several often mentioned price drivers. This article will explore his findings and present them in a clear and concise way.

Let’s look at several price drivers and discuss each of them. In order to Bitcoin price drivers can be divided into several groups:

Economic drivers

Data analysis shows that classical laws of supply and demand are at work. On the other hand, often heard presumption  that the limited supply  leads to a price increase seems to be wrong. There is no factual confirmation of price increasing because of the limited supply. Reason behind this can be explained by the fact that the market players included the limited supply into their price expectations.

Transaction drivers

There appear to be two contradictory effects related to the usage of Bitcoin. One derives from the assumption that the greater is the usage of Bitcoin, more valuable it will be.  Second one is the speculative assumption, which states that increased volatility will have an adverse effect on the price. Researchers proved that price increases with the increased use of Bitcoin. The more we use Bitcoin for everyday transactions, more it will be worth. Although it seems logical, it also proves that Bitcoin has value.  On the other hand, there is no clear evidence that increased volatility of the Bitcoin price has a negative effect on Bitcoin. The data collected did not seem to provide evidence that volatility influences the price in any negative way in a long term setting.

Technical drivers

Relation between the hashrate and the price has often been misinterpreted. Many argue that the increase in computational power directed to mining Bitcoin or other cryptocurrencies leads to increase in prices. It seems not to be the case. Increase in prices motivates users to turn the computational power toward mining. The gap between mining difficulty and the price attracts new users that try to increase profit from their mining rigs. Although this gap closes quickly, data indicates that it is clearly that prices move the miners and not the other way around.


At the beginning of 2013, with price rising to 200 USD per Bitcoin, it is evident that the interest in the currency was leading the increase in price. The more people got to know about Bitcoin, it seems more they wanted to buy it. This relationship worked in the cases where Bitcoin price was rapidly increasing. On the beginning of the bubble, interest increased price more than it would have otherwise. On the other hand, when the price declined, it declined ever more because of the effect interest had on it. Various interpretations can be provided, but logical conclusion is that the influx of new users is a boost for the price when it is going up, but also pushes it down even more when decline occurs. Most likely, many of the new users are inexperienced with the financial markets and tend to buy and sell emotionally.

Influence of China

Connection between Chinese and US markets is present. Data analysis yielded statistically significant correlations. While it is obvious that the markets are connected, causality can’t be implied. Many argue that the Chinese markets are influencing the US market. This claim is not supported by data. Although there is a connection between the markets, there does not seem to be a market leader.

Safe haven

Bitcoin often has been labeled as a safe haven. With increasing price and growing popularity, idea that the Bitcoin is a safe investment option that can guarantee above average market return gained popularity. Unfortunately, this does not seem to be the case. When compared to other currencies and commodities such as gold and Swiss Franc, it becomes clear that there is little or no relationship present.


Ladislav’s research is first of many focusing on the Bitcoin price mechanics. Undoubtedly, there will be many more dealing with this subject in the future. Still, this research enables us to glimpse into the shrouded mechanism covering the Bitcoin price formation.


Vasilije Markovic for CEX.IO