Recently, a friend asked me what the underlying logic is behind this wave of Bitcoin market movements. I realized that to understand the rise and fall of cryptocurrencies, it’s really about understanding changes in market supply, demand, and expectations.

Let’s start with the most straightforward facts. Bitcoin rose from around $15,000 over two years ago to a historic high of $126,080 last year. That increase was indeed astonishing. But now, it has pulled back to around $70,920. There are clues behind this volatility.

First, there are changes on the supply side. Bitcoin has a total supply cap of 21 million coins, and over 20 million have already been mined. The key point is that in April 2024, Bitcoin experienced a halving event, reducing the daily new supply from 900 coins directly down to 450 coins. What does this mean? It means the rate of new supply has sharply decreased, while market demand for Bitcoin has not declined at the same pace. That’s why we saw that surge in price.

Demand-side changes have also been qualitative. In early 2024, the U.S. approved the first spot Bitcoin ETF, followed by more institutional-grade products launching. This made it easier for ordinary investors to participate and also brought in a large influx of institutional capital. When institutional investors start viewing Bitcoin as part of their asset allocation, market liquidity and recognition increase. This is the most important factor in the rise and fall of cryptocurrencies—demand increases, supply is limited, and prices naturally go up.

But I’ve noticed that Bitcoin’s price movements are far more complex. Regulatory environment is crucial. Government attitudes toward regulation and whether they recognize Bitcoin’s legal status can directly influence market sentiment. During times of economic instability, Bitcoin is often seen as a safe-haven asset, which can cause demand to surge. Conversely, if the global economic outlook is optimistic and risk assets are favored, Bitcoin’s appeal might decrease relatively.

Another easily overlooked factor is mining dynamics. Changes in hash rate, mining costs, and miners’ holding behaviors can impact Bitcoin’s short- and medium-term prices. When hash rate recovers or miners start selling, the market can feel the effect immediately.

Ultimately, the reasons for cryptocurrency price fluctuations involve supply and demand, policies, sentiment, macroeconomics, technological progress, and even large holders’ actions. These factors intertwine to create Bitcoin’s seemingly irregular yet logical price swings. My personal feeling is that to make rational decisions in this market, you need to pay attention to all these dimensions rather than focusing on just one factor. Lastly, I want to emphasize that Bitcoin investment carries significant risks, and prices can be highly volatile. So, before participating, it’s essential to fully understand your own risk tolerance.