Why does Bitcoin have value & what drives its price?

The question behind the question

Bitcoin has value because people agree it does. That might sound circular, but it's the same reason gold, dollars, or any asset has value — consensus and utility.

The price of Bitcoin, though, moves constantly. One week, it's up 15%; the next, it's down 10%. Understanding what drives these swings means understanding the forces behind Bitcoin's market dynamics.

This guide breaks down both questions: why Bitcoin has value in the first place, and what makes its price move the way it does.

Why does Bitcoin have value?

Before we talk about price drivers, let's address the foundational question: what gives Bitcoin value?

Bitcoin's value comes from a few core attributes that make it different from traditional currencies:

Scarcity — Only 21 million Bitcoin will ever exist. This cap is written into the code and cannot be changed. 

Decentralization — No single government, company, or person controls Bitcoin. It runs on a global network of computers, making it resistant to censorship or manipulation.

Utility — Bitcoin works as a borderless payment system. You can send it anywhere in the world without intermediaries, and it settles faster than traditional banking systems in many cases.

Security — Bitcoin's blockchain has never been hacked. The network's size and structure is considered to be one of the most secure systems for transferring value ever created.

Think of it this way: Bitcoin is valuable for the same reason the internet is valuable. It's a network that becomes more useful as more people use it, and it solves real problems that older systems struggle with.

What drives Bitcoin's price?

Value explains why Bitcoin exists and matters. Price, though, is determined by the market — by buying and selling pressure, news cycles, and sentiment shifts.

Here are the forces that move Bitcoin's price day to day:

Supply and demand

This is the most basic driver. When more people want to buy Bitcoin than sell it, the price rises. When more people want to sell than buy, it falls.

But Bitcoin's supply side is unique. Unlike stocks, where companies can issue more shares, or fiat currencies, where central banks can print more money, Bitcoin's supply increases on a fixed schedule and will eventually stop entirely.

This creates an asymmetry: demand can fluctuate wildly, but supply stays predictable.

Bitcoin halving events

Every four years, the number of new Bitcoins entering circulation gets cut in half. This is called a halving.

Miners are rewarded with newly created Bitcoin for validating transactions. When a halving occurs, their reward drops by 50%. This means fewer new Bitcoins are created each day.

Historically, halvings have been followed by significant price increases. The logic is straightforward: if demand stays the same but the new supply shrinks, the price should rise.

The most recent halving happened in April 2024. The next one is expected around 2028.

Visual suggestion: Timeline graphic showing past halving dates and Bitcoin's price before/after each event. (Alt text: "Bitcoin halving timeline from 2012 to 2024 with price changes")

Market sentiment and news

Bitcoin's price reacts to headlines. Regulatory announcements, institutional adoption, macroeconomic shifts, and even tweets from high-profile figures can trigger rapid price moves.

For example:

• When a country announces favorable crypto regulations, the price often rises.

• When a major institution, such as a pension fund, buys Bitcoin, it signals confidence and drives demand.

• When there's uncertainty in traditional markets, Bitcoin can behave like a risk asset, dropping alongside stocks.

The key point: Bitcoin is still a relatively young asset, so sentiment plays an outsized role compared to more established markets.

Adoption and institutional investment

In Bitcoin's early years, most buyers were individuals. Today, institutions — hedge funds, publicly traded companies, even governments — hold significant amounts.

When large players enter the market, they bring liquidity and legitimacy. This can stabilize prices over the long term, but it also means that big moves by institutional investors can create sharp short-term price swings.

Adoption also matters on the retail side. The more people use Bitcoin for payments, savings, or as collateral for loans, the more embedded it becomes in the financial system.

Macroeconomic conditions

Bitcoin doesn't exist in a vacuum. It responds to the same global forces that affect stocks, bonds, and commodities.

When interest rates rise, riskier assets like Bitcoin often fall as investors move to safer options. As inflation concerns grow, some people turn to Bitcoin as a hedge, much like gold.

Central bank policies, currency devaluation, and geopolitical instability all influence how attractive Bitcoin looks compared to traditional assets.

Why Bitcoin tends to be volatile

Volatility is part of Bitcoin's identity. Unlike the dollar or euro, which move in tiny fractions, Bitcoin can swing 5% or more in a single day.

This happens for a few reasons:

Smaller market size — Bitcoin's total market cap is still far smaller than traditional assets like gold or major stock indices. Smaller markets are easier to move with large trades.

24/7 trading — Bitcoin markets never close. News breaks at any hour, and prices react immediately, unlike stock markets that pause overnight.

Speculation — Many people buy Bitcoin hoping to profit from short-term price moves. This creates rapid buying and selling, which amplifies volatility.

Leverage — Futures and margin trading let people control large positions with small amounts of capital. When leveraged positions get liquidated, it can trigger cascading price moves.

Volatility isn't inherently bad. It creates opportunity, but it also demands discipline and a clear strategy.

How to use this knowledge

Understanding what drives Bitcoin's price helps you make better decisions about when to buy, when to hold, and when to use your Bitcoin for other purposes.

For example:

• If you believe a halving will drive prices higher, you might choose to hold Bitcoin long-term instead of spending it.

• If you need cash but expect Bitcoin's price to recover, borrowing against your BTC lets you access funds without selling.

• If volatility makes you nervous, stablecoins or diversified crypto holdings can reduce risk while keeping you in the market.

The point isn't to time the market perfectly. It's to understand the forces at play so you can align your strategy with your goals.

Using Bitcoin beyond price speculation

While price movements get most of the attention, Bitcoin's utility goes beyond buying low and selling high.

You can earn interest on your Bitcoin through savings products, borrow against it to unlock liquidity without selling, or use it for everyday spending through crypto cards.

These strategies let you put Bitcoin to work regardless of short-term price swings. 

With Nexo's Flexible Savings, your BTC earns daily interest while staying accessible. With Nexo's Credit Line, you can borrow against your holdings at rates from 2.9% and keep your Bitcoin exposure intact.

Frequently asked questions

1. Why does Bitcoin have value?

Bitcoin has value because it's scarce (limited to 21 million coins), decentralized (no single entity controls it), and useful (borderless payments). Like gold, its value comes from what people agree it's worth.

2. What drives Bitcoin's price?

Bitcoin's price is driven by supply and demand, halving events that reduce new supply, market sentiment and news, institutional adoption, and macroeconomic conditions like interest rates and inflation.

3. What is Bitcoin halving, and how does it affect price?

Bitcoin halving is an event that occurs every four years, cutting the reward for mining new Bitcoin in half. This reduces the new supply entering the market. Historically, halvings have been followed by price increases as demand stays steady but supply shrinks.

4. Why is Bitcoin so volatile?

Bitcoin is volatile because it has a smaller market size than traditional assets, trades 24/7 without breaks, attracts speculative trading, and allows leverage that can amplify price swings.

5. What gives Bitcoin value compared to fiat currency?

Unlike fiat currencies, which governments can print indefinitely, Bitcoin has a fixed supply cap. It also operates independently of any central authority, making it resistant to inflation and political interference.

6. How is the value of Bitcoin determined?

Bitcoin's value is determined by what buyers and sellers agree to pay for it in open markets. Factors like scarcity, utility, adoption rates, and market sentiment all influence this price discovery process.

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