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What Drives the Crypto Market?

May 17, 2023
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In recent years, the crypto market has seen an extraordinary surge in significance and global attention. The market has transformed the world of finance, disrupting existing structures and providing unprecedented opportunities for investors and enthusiasts alike.

The market's potential for high returns has attracted a growing number of individuals and institutional investors, transforming how we perceive and engage with traditional financial systems. However, a downside of the crypto market is its volatility; its penchant for swinging high or low quickly. This characteristic has raised pertinent questions such as: Why does the market change so quickly? What causes these changes?

This article seeks to answer these questions by delving into the driving forces of the cryptocurrency market. It will also provide insights into the dynamics that shape its movements.

Regulatory framework, innovations, market speculations, and market manipulation are some of the factors that drive the crypto market. These factors provide a good foundation for understanding the dynamics that shape the crypto world.

Regulatory Environment

The crypto regulatory framework is one of the topmost conversations in the industry. Government laws significantly impact the growth, stability, and appeal of the cryptocurrency industry. Crypto users once fought regulation because they felt it would offer governments the opportunity to control and centralize a financial system that was created and sustained by decentralization. However, as bad actors flooded the industry with crypto’s increasing popularity, it became necessary to create legal frameworks to oversee the scope and requirements for crypto use.

Crypto Regulation World Map (Source: Elliptic)

Effective regulation helps keep the market stable by reducing bad practices in the industry such as market manipulation, insider trading, and excessive speculation. Therefore, fraudulent acts are minimized, while fair business practices are promoted. Regulatory investigations and transparency measures have helped resolved confusion about certain alternative currencies and stablecoins. Also, friendly regulatory environments have fostered innovation and growth, attracting blockchain startups and companies.

This does not mean that regulation does not have its downsides. For instance, some countries have set severe crypto exchange licensing requirements, making it difficult for smaller exchanges to enter the market. These high compliance costs and barriers can lead to a monopolistic environment dominated by a few major businesses that diminish market diversity and potentially restrict innovation.

Technological Innovations

Assume a new coin is created that has considerable advantages over existing ones. In such scenario, consumers may migrate their investments to the new coin, causing market fluctuations. This is an example of how technological advancements, such as blockchain innovations or the creation of new cryptocurrencies, can impact the crypto market.

Advancements within and outside the crypto industry are capable of causing major shifts in the crypto market. Take, for example, smart contracts. Smart contracts revolutionized crypto finance. As self-executing contracts, they gave crypto users the window of opportunity to embrace decentralized finance in its entirety. Users can transact on DeFi platforms because of the immutability and transparency smart contracts provide. Furthermore, smart contracts eliminate the need for middlemen, thus reducing the risk of fraud, censorship, and manipulation. All these has lured both individual and institutional investors to the cryptocurrency market.

Market Speculation

Market speculation affects the price of cryptocurrencies. In fact, one can posit that it is the primary driver of market value. Cryptocurrencies are volatile because they are highly speculative assets that present an opportunity for speculators to profit from short-term price fluctuations. To profit, investors, or more aptly put, speculators aim to buy low and sell high or vice versa (in cases of margin trading).

Being a highly speculative market, emotions such as fear and greed significantly impact the market. These emotions make investors and traders forget that markets are not static. In other words, what goes up must come down, and vice versa. So there is a high demand and price increase for an asset when it seems profitable. The reverse is the case when the asset experiences a downturn.

A third kind of emotion called FOMO or the Fear of Missing Out also fuels speculative behavior as people rush to buy cryptocurrencies in response to hype, good news, or price increases without thorough due diligence. FOMO-driven activities can lead to price swings in the crypto market.

Crypto assets market capitalization in 2021 (Source: International Monetary Fund)

Market Manipulation

Market manipulation, in which individuals or groups attempt to artificially inflate or deflate prices for their own profit, can impact cryptocurrency speculation. These methods include pump and dump schemes, spoofing, and wash trading which can produce false perceptions of demand or supply, resulting in volatile price swings.

What Drives the Bitcoin Market?

Being the premier cryptocurrency, the dynamics of Bitcoin are sometimes quite different from other cryptocurrencies. BTC’s spectacular rise plus market volatility have attracted investors, enthusiasts, and financial institutions worldwide. As a matter of fact, investors who may not believe in other cryptocurrencies may be willing to invest in Bitcoin. Therefore, the factors that drive the Bitcoin market may be slightly different from those that drive the general market. Some of them include supply and demand and global adoption.

Table Showing Bitcoin Price and Price Change From 2010-2023


Bitcoin Price ($)

Change ($)

2010 0.09 0
2011 0.30 0.21
2012 5.28 4.98
2013 13.30 8.03
2014 754.22 740.92
2015 314.25 -439.97
2016 434.33 120.99
2017 998.33 563.99
2018 13,657.20 12,658.88
2019 3,843.52 -9,813.68
2020 7,200.17 3,356.65
2021 29,374.15 22,173.98
2022 47,686.81 18,312.66
2023 16,625.08 -31,061.73

Supply and Demand

In contrast to traditional fiat currencies, which may be created at will, Bitcoin has a fixed supply of 21 million. This means that its supply cannot be extended beyond a predetermined limit. Thus as Bitcoin's supply decreases, there is a demand pressure because it becomes increasingly scarce and this would naturally cause a rise in value. Consequently, this value rise would cause investors to seek exposure to Bitcoin, further driving up the value.

Other drivers of Bitcoin demand include investors’ emotions, institutional acceptance, regulatory changes, macroeconomic considerations, and market trends.

Global Adoption and Payment

Bitcoin’s utility is another key driver of its value. As more individuals use Bitcoin for transactions, its demand rises. This is why Bitcoin programmers pay keen attention to the ease of use, transaction speed, cost efficiency, and scalability of the Bitcoin network. These factors impact the overall operability of the network, influence demand, and impact Bitcoin price.

Another aspect of Bitcoin’s adoption is its use in payments. In fact, it is one of the pointers to Bitcoin’s growing adoption. Over time, more businesses, retailers, and service providers have begun to recognize and accept Bitcoin as a viable payment method. These businesses have begun to integrate Bitcoin payment options, giving users the convenience of using Bitcoin for online transactions and increasing adoption even further.

Bitcoin also delivers financial services to the world's unbanked and underbanked people. Individuals without access to traditional banking infrastructure can use Bitcoin to store, send, and receive funds, allowing them to participate in the global economy. Established investment and trading platforms have also included Bitcoin trading capabilities, allowing users to purchase, trade, and hold Bitcoin alongside traditional financial assets. This integration promotes market liquidity by allowing a broader range of investors to engage in the Bitcoin market.


Security incidents have had a significant impact on Bitcoin. For example, the Mt. Gox hack in 2011 caused Bitcoin to lose 99% of its value. While Bitcoin itself is built on robust cryptographic protocols, security vulnerabilities can arise from various sources such as user error and exchanges.

High-profile security breaches or hacking incidents weaken market trust in Bitcoin's security and dependability. News of successful attacks or thefts causes investors and users to worry, resulting in a drop in demand and value. Furthermore, traders and investors become more wary or hesitant to engage in Bitcoin trading or holding activities which contributes to increased market volatility and lower trade volumes.

However, to maintain market stability, consistent efforts are being made to ensure the security of transactions and develop reliable custodial solutions. Some Bitcoin custodians and exchanges provide insurance to protect user funds in the event of a security breach or a hacking incident. Insurance policies can add an extra layer of security and compensate users for any damages incurred as a result of security incidents.

There are also audits of Bitcoin reserves undertaken by credible third-party organizations that are publicly verifiable and help to develop trust and validate that exchanges and custodians retain the reported quantities of Bitcoin.

Frequently Asked Questions

    What controls the cryptocurrency market?

A combination of the regulatory environment, supply, market speculation, and technological innovations controls the cryptocurrency market.

    When is Bitcoin generally more valuable on the market value?

Bitcoin is more valuable on the market value when demand rises higher than supply.

    Does the value of my Bitcoin go up if the market goes up?

In simple terms, the price of Bitcoin goes up when there is a demand for it and goes down, when there is less demand for it.

    What is driving the cryptocurrency market?

Technological Innovation and the rising of digital investments are driving the cryptocurrency market.

    Is the cryptocurrency market purely supply and demand?

Alongside supply and demand, there are other factors such as market speculation.