Bitcoin's Value Drivers

Bitcoin is currently trading at 46 456 USD per Bitcoin.

As far as I am concerned, Bitcoin's main value driver is people's willingness to adopt Bitcoin as money or unit of account, store of value and means of exchange.

In the short term many other factors have an influence.

When the United States Dollar appreciates driven by the movement lower in the yields of US Treasuries caused by the likely imminent raises of the Federal Funds Rate by the Federal Reserve almost all risk assets like equities prices, commodities and emerging markets currencies depreciate or fall in value.

Bitcoin, so far has not gone through a longer period of the Federal Reserve, the central bank of the United States, raising the interest rates levels in the USA and thus, due to the United States Dollar global reserve currency status globally, also driving interest rates higher around the world.

Bitcoin's price in USD has fallen more than 30 % since the beginning of November when it was already clear that due to the rising price levels in the economy the Federal Reserve will soon begin raising the interest rates levels via its control variable the Federal Funds Rate.

Many analysts were contemplating whether Bitcoin will behave differently than other risk assets due to its electronic global reserve currency status, be it in a limited form. Bitcoin's recent nascent history showed that the major cryptocurrency behaves like a risk asset.

Actually, I was expecting such a price development. Bitcoin's adoption as money is sill too nascent for Bitcoin to act as a safe heaven.  The US Commodity Futures Trading Commission considers Bitcoin as a commodity and commodities exhibit the greatest price volatility among major asset classes.

In the short term speeches and statements by leading Bitcoin and other cryptocurrencies early adopters like Elon Musk, founder of Tesla, SpaceX, Jack Dorsey, founder of Twitter, Square, Marc Andreessen and so on make for Bitcoin price moves.

In the long run, however, it seems that the Federal Reserve and other leading global central banks's policies and the public's adoption will vie for influence over Bitcoin's price development.

I have noticed that when the news flow around Bitcoin and crypto gets louder and more frequent, Bitcoin and other cryptocurrencies' prices tend to rise. The higher frequency of news is usually, of course, connected with the public adopting more widely Bitcoin. But also technological developments can contribute to Bitcoin's price moves.

A way to invest in Bitcoin related stocks via the stock market are the publicly listed equites of Robinhood Markets Inc, the stocks and cryptocurrencies brokerage and Coinbase, the cryptocurrency exchange platform or cryptocurrencies bourse. Both Robinhood and Coinbase's market capitalisations have fallen a lot since the beginning of November along with the general stock market and cryptocurrencies' prices decline driven by the news of the imminent hawkish stance of the Federal Reserve, rising interest rates level, that is.

However, in my opinion, the current stock market, Bitcoin, other cryptocurrencies and commodities sell off will be overdone if it continues beyond February 2022.

Bitcoin is the pinnacle of the fourth industrial revolution driven by artificial intelligence or software algorithms, that is. Artificial intelligence, AI, or algorithms are an ingenious way to save costs for corporations. And since the dawn of capitalism every high ranked manager in a corporation will tell you that one of his/hers main goals is to to save on costs and thus increase profit distributions to capital owners, which is the essence of capitalism, in fact. And this is why capitalism has worked so well, thus far.

The previous revolutions, like the industrial revolution, also brought in machines to automate manual labour usually done by humans. The current AI fourth industrial revolution has the same nature. Bitcoin is the financial edge of the current artificial intelligence industrial revolution.

People hold banknotes and the related fiat money in banks and in electronic form, because that is a much more efficient, cost saving way to store wealth and banknotes. Banks and electronic accounts balances save people time, money and effort and in a significant way at that.

Thus, the current fourth industrial revolution driven by artificial intelligence, AI algorithms is also a significant driver of Bitcoin's value. Bitcoin's existence and creation is secured by the blockchain, a hashing algorithm which creates, transfers and perpetuates Bitcoin and which all other cryptocurrencies are base.

So the state of technology or algorithms in this case is also a very important force that drives Bitcoin's value.

What is more, apart from being an emerging alternative to money, Bitcoin is close to disrupting financial intermediation. Up till now, Bitcoin's price volatility has made it difficult for Bitcoin and other cryptocurrencies to be utilised as a means to transfer money or wealth. However, with the rising participation of institutional investors in the crypto market, Bitcoin's volatility is bound to fall.

In addition, Bitcoin provides the infrastructure for other cryptocurrencies, especially new ones. Companies, via a White paper, can issue cryptocurrencies bound to the respective companies' projects with which young and emerging technology startups can finance their businesses in relatively large amounts via an Initial Coin Offering or a Initial Exchange Offering involving the issued cryptocurrency. Similar in amount to a series A or series B funding, as these startup funding rounds are known, but with the particular company characteristics more suitable and adequate for what is known as angel investing. Or very immature, sometimes only an idea on a napkin startup stage of development.

In short, Bitcoin and the cryptocurrencies market can disrupt investment banking and the investment banks which finance companies by taking them to public stock markets through a process known as an Initial Public Offering or an IPO. And cryptocurrencies can also possibly disrupt the Venture Capital industry.