When Bitcoin launched, the price of a single Bitcoin was less than a dollar. But by 2017, the Bitcoin price AUD reached a staggering A$28,000! Since then, the price has continued to fluctuate, making it an exciting investment opportunity for experienced investors and novices alike. As of today (October 2020), 1 Bitcoin is worth more than A$19,000.

In this post, we’re going to explore the factors that determine Bitcoin price in AUD so that you can make informed decisions when you invest! But before we get started, if you’re new around here you might also want to check out our previous post titled 'What is Bitcoin' to learn the basics.

Supply and Demand

Unlike traditional currencies such as the Australian Dollar, which gain value from being legal tender (shops are legally prevented from refusing payments in AUD), Bitcoin's value is determined by what buyers are willing to pay for their share of the lucrative cryptocurrency.

This concept of supply and demand is the most powerful factor affecting the Bitcoin price in AUD. The creators of Bitcoin limited its supply to 21 million coins, so there is a cap on how many Bitcoins can enter circulation. This has the effect of making Bitcoin a scarce commodity, like gold and silver. If demand increases over time, the price will rise with it. If that demand shrinks, so will the Bitcoin price.

Demand for Bitcoin is affected by its utility. Or in other words, how useful it can be to those holding it. With each new use, the utility of Bitcoin grows, making it more desirable and increasing its value. For example, once cryptocurrencies are normalized as a method of payment for consumer goods, we expect to see a significant spike in demand as the pool of potential buyers becomes much larger.

Political and Economic Events

Just like traditional currencies, political upheaval, or uncertainty can cause the value of Bitcoin to change. This is compounded by the fact that many investors use Bitcoin to hedge against price movements in a particular currency.

For example, leading up to the Brexit Referendum, where the United Kingdom would decide if it was to leave the European Union, the price of Bitcoin increased, whilst the British Pound declined in value. Similar occurrences were noted in Greece, where Bitcoin buying increased as local people sought to protect their wealth from the fallout of the economic crisis in 2015.

Most of the time, currency fluctuations caused by political or economic events will even out in a few months. However, events with a global impact, such as the COVID-19 Outbreak, could have consequences that last for several years. As an investor, you need to factor both short term and long term disturbances into your strategy.

Media and Culture

The perception of Bitcoin in popular culture is another key consideration for investors.

Analysis of Bitcoin pricing shows that positive media coverage is a major stimulus for investment. People like to read good news and positive coverage over a period of time builds confidence. Of course, the opposite is also true—sustained negative coverage will reduce value.

You can see these trends playing out when you look at Bitcoin’s pricing over time. When the mainstream media started to report on cryptocurrencies, Bitcoin experienced a number of price increases and collapses.

In part, this is why it has a reputation for being so volatile today. The media created cycles of hype and then quickly followed up with stories that made investors wary. It’s hard to mitigate the effects of the media, but keeping track of mainstream opinion will help you to make wise choices as an investor.

One of the reasons many people choose to invest in the first place is that the volatility is exciting to manage. Spikes and increases create huge opportunities for profit if you play your cards right, all you need to do is your homework!

Regulatory Bodies

In the early days, Bitcoin posed a problem for regulators. As a decentralised currency, it became difficult to determine how state actors could intervene.

For the past few years, regulators have been playing catch-up. Each country needs to agree on a national approach to cryptocurrency and it could have huge implications for the bitcoin price in AUD and around the world.

It’s unlikely that regulators will adopt a united approach and as such we can expect further volatility in the Bitcoin market. For example, China has already decided to shut down Bitcoin exchanges and only allow peer-to-peer trading, which resulted in a short-term decline in Bitcoin value. On the flip side, Japan confirmed Bitcoin as a legal payment method, which contributed to a 19% spike in Bitcoin's value the year the decision was made.

The Bitcoin Community

The software that makes and manages Bitcoin transactions was created by developers and is run by ‘miners.’ Collectively, they make up the global community responsible for verifying Bitcoin transactions.

Although Bitcoin is decentralised, this community needs to make decisions about how the currency is transacted, exchanged, and adopted over time. These decisions also have an impact on price.

At present, the community uses a majority votes system to decide on any changes. To make adjustments to the software used to mine and authenticate transactions developers need to get more than 50% of the total mining networking to agree with the proposed change. When they reach a majority, they can create what’s known as a ‘fork’ and get to work on the new action.

The Bitcoin Price AUD Will Fluctuate. But You Can Handle It.

The Bitcoin Price AUD is determined by external factors, such as political uncertainty, global regulation, and the way public opinion on cryptocurrencies is influenced by the media. Internal factors, like strategic decisions made by Bitcoin Miners, also play a role, as they determine the currencies' future.

Mixed together, these factors mean the Bitcoin Price AUD is more volatile than traditional currencies. We think that makes investing more exciting, more profitable and dare we say enjoyable! Check out our blog for more on bitcoin prices in AUD.