What Affects Bitcoin Price and Value?

What affects bitcoin price and value?

Disclosure: Nothing in this blog should be taken as investment advice. Do your own research. This blog is supported by advertising and affiliate links... Links to products and/or services on this blog may include links to affiliate programs that provide commissions to this blog. All of the content in this blog is 100% my own opinion.


Bitcoin price and our perception of value in cryptocurrencies are driven by hype and speculation. Speculation is rooted in our sentiment about the price of a particular coin or token, and whether it will rise of fall.

Sentiment is a feeling, emotion or attitude about a particular situation, or things, such as cryptocurrencies and Bitcoin.

Positive sentiment means we believe Bitcoin price will rise, whereas negative sentiment means we believe the price will fall.

With the rise of social media, blogs and viral news, there is evidence that positive or negative sentiment alone can fuel the hype and cause corresponding upward or downward movements in Bitcoin.

Bitcoin Price Using Sentiment Prediction Analysis

Can sentiment analysis actually predict whether Bitcoin price will go up or down?

Let’s see.

Siraj Raval offers instructions for creating a sentiment analysis algorithm using Python to predict whether the price of Bitcoin will rise or fall based on the data inside Twitter and/or Reddit posts.

He argues that sentiment analysis can predict whether most people want to buy or sell a cryptocurrency. This sentiment data is what most affects Bitcoin price and value is based on human emotion.

Will Bitcoin Price Always Be Driven By Emotion?

Bitcoin and other cryptocurrency prices are driven almost solely on speculation… However, it is expected that cryptocurrencies, digital assets and blockchain are only in their infancy.

In time the demand for digital currencies could increase or decrease. On the negative side, cryptocurrencies and digital assets could be banned outright, or suffer from political, technical or legal setbacks.

I’m betting they’re here to stay.

Bitcoin behaves more like an asset than a currency, which is why platforms like Stripe have decided to stop accepting it for payments. However, other cryptocurrencies, such as Cardano and Stellar, may behave more like true currencies over time.

As the market matures, new applications will be built to exploit not only the blockchain(s) that underlie different cryptocurrencies, but also the cryptocurrencies themselves.

With new applications, we will be able to value blockchain applications in new ways. We can expect valuation metrics based on the types of merchants accepting the cryptocurrencies or tokens, the number of developers using them for related business, transaction volume and/or network usage, value created and perhaps even cryptocurrency dividends.

Ethereum is a good example of this.

The Ethereum network is essentially a platform upon which other cryptocurrencies and smart contract systems can be built using ERC-20 tokens1

Applications can be built upon the Ethereum network, including Kodak’s “KodakCoin“, billion dollar cryptocurrencies such as EOS, and silly games such as Cryptokitties (read the White Pa-Purr).

Footnotes

  1. ERC-20 tokens are smart contracts that run on the Ethereum blockchain.