Bitcoin is considered the king of the crypto market. It almost drives the whole market. When it pumps, most of the coins go up. Similarly, when it dumps, the whole market bleeds. So, to understand the market sentiments, one must analyze the Bitcoin price movement. Let’s understand, what factors cause the Bitcoin price to rise or fall.
Top 5 Major Factors that affect Bitcoin Price
First and foremost, like every other asset, the price of a crypto token including Bitcoin is determined by its demand and supply.
As Bitcoin’s total supply is constant i.e. 21 million, the increase in Bitcoin’s demand increases its price. If there are more buyers, the price will move up; if there are more sellers, the price will dump.
However, Bitcoin’s price strongly depends on a few other factors or macroeconomic indicators too. We will discuss them one by one.
1. Bitcoin is in a Negative Correlation to DXY
DXY is simply a US Dollar Currency Index. It shows the strength of the dollar. If DXY rises, Bitcoin will fall, and vice versa.
We can keep track of DXY on TradingView as well as by keeping ourselves abreast of US Federal Reserve announcements. If Federal Reserves would announce more interest rates, this means DXY would rise and the value of Bitcoin will decline.
On contrary, if FED reduces interest rates or prints more dollars, means the value of the USD will decline which would cause the price of Bitcoin to rise.
So, Crypto traders need to remain up-to-date on FED’s latest meetings and announcements.
2. Bitcoin and USDT Dominance
Similar to DXY, USDT Dominance (USDT.D) is also in a negative correlation to Bitcoin. Falling USDT.D means rising BTC and vice versa.
One can keep track of USDT.D on TradingView and can easily predict Bitcoin price movement by observing USDT.D support and resistance.
3. US Government Bonds Yield
US Govt Bonds 10 YR Yields (US10Y) is also inversely proportional to Bitcoin price. That means BTC somehow observes and inversely reacts to the US10Y movement.
However, it is to be noticed that the Bitcoin price isn’t largely impacted by the US10Y index. One can see some impact but not a significant impact like other factors (as discussed above and below).
4. NASDAQ is in Positive Correlation to Bitcoin
NASDAQ100 is made up of the 100 largest non-financial companies listed on the NASDAQ exchange. NASDAQ index, to be precise, is the performance index of those companies.
To see how Bitcoin will move, one needs to analyze how NASDAQ Index is performing. If it is in an uptrend, Bitcoin price is surely going to follow it.
Similarly, if NASDAQ Index crashes, Bitcoin will bleed too.
5. S&P 500 or SPX impacts Bitcoin Price the Most
S&P 500 or SPX has a great impact on Bitcoin price.
What is S&P 500? The Standard and Poor’s 500, or simply the S&P 500, is a stock market index tracking the stock performance of approximately 500 large companies listed on stock exchanges in the United States.
If they perform well and the graph goes up, Bitcoin will follow it and will go up. Likewise, dumping SPX will cause the Bitcoin price to bleed.
To conclude the whole discussion, one has to keenly analyze the above-mentioned factors before opening a trade for Bitcoin.
Moreover, one needs to stay updated regarding CPI data, FOMC announcements, United States PCE Price Index Annual Change, etc that largely and quickly decide the fate of Bitcoin price.
Higher inflation numbers mean Bitcoin will suffer. Higher interest rates will cause Bitcoin to bleed. A strengthening dollar will again dump Bitcoin price.
In short, these are key factors that cause the Bitcoin price to rise and fall.
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