Crypto, short for cryptocurrency, is a form of digital money that is secured by cryptography and runs on decentralized networks. Bitcoin is the first and most popular crypto, created in 2009 by an anonymous person or group known as Satoshi Nakamoto. Crypto and Bitcoin have the potential to revolutionize the way we transact, store value, and access financial services, especially in the emerging markets where many people are unbanked or underbanked. In this blog, I will explain how crypto and Bitcoin work, what are the factors that drive their price movements, and why you should be aware of the next bull run that could make Bitcoin reach new heights.

How Crypto and Bitcoin Work

Crypto and Bitcoin are based on a technology called blockchain, which is a distributed ledger that records transactions and data in a secure and transparent way. Each transaction is verified by a network of computers, called nodes, that follow a set of rules, called a protocol. Each transaction is also added to a block, which is a group of transactions that are linked together by a cryptographic hash. Each block also contains a reference to the previous block, forming a chain of blocks, hence the name blockchain. This way, the blockchain maintains a complete and immutable history of all transactions and data that ever occurred on the network.

To use crypto and Bitcoin, you need a wallet, which is a software or hardware device that stores your private and public keys. Your private key is like a password that allows you to access and spend your crypto, while your public key is like an address that allows you to receive crypto from others. You can also use your wallet to interact with various applications and platforms that are built on top of the blockchain, such as exchanges, lending platforms, gaming platforms, and more.

What Drives Crypto and Bitcoin Prices

Crypto and Bitcoin prices are determined by the forces of supply and demand, as well as by various external factors that influence the market sentiment and behavior. Some of the main factors that affect crypto and Bitcoin prices are:

Supply: The supply of crypto and Bitcoin is limited by the protocol design and the mining process. Mining is the process of creating new blocks and validating transactions on the network, which requires a lot of computational power and electricity. Miners are rewarded with newly minted crypto or Bitcoin for their work, which increases the supply. However, the supply growth rate is not constant, as it depends on the difficulty level, which adjusts according to the network activity and the hash rate, which is the total computing power of the network. For Bitcoin, the supply is capped at 21 million, which means that there will never be more than 21 million bitcoins in existence. This makes Bitcoin scarce and deflationary, unlike fiat currencies that are inflationary and can be printed at will by central authorities.

Demand: The demand for crypto and Bitcoin is driven by various factors, such as the adoption rate, the innovation rate, the regulatory environment, the media coverage, the public perception, and the investor sentiment. The more people use, accept, and support crypto and Bitcoin, the higher the demand and the price. Conversely, the less people use, accept, and support crypto and Bitcoin, the lower the demand and the price. For example, when a major company, such as Tesla, announces that it will accept Bitcoin as a payment method, the demand and the price of Bitcoin increase. On the other hand, when a major country, such as China, bans crypto activities, the demand and the price of crypto decrease.

Volatility: The volatility of crypto and Bitcoin prices refers to the degree of variation and unpredictability of the price movements over time. Crypto and Bitcoin prices are known to be highly volatile, meaning that they can change significantly and rapidly in either direction. This is because crypto and Bitcoin markets are relatively new, immature, and unregulated, compared to traditional financial markets. This makes them more susceptible to manipulation, speculation, and uncertainty, as well as to external shocks, such as hacks, scams, technical issues, or geopolitical events. For example, when a major exchange, such as Mt. Gox, gets hacked and loses millions of dollars worth of crypto, the price of crypto plummets. On the other hand, when a major event, such as the Bitcoin halving, occurs and reduces the supply growth rate, the price of Bitcoin surges.

Why You Should Be Aware of the Next Bull Run

A bull run is a period of sustained and significant price increase, usually accompanied by high trading volume and positive market sentiment. A bull run can be triggered by various factors, such as a breakthrough innovation, a favorable regulation, a mass adoption, or a major endorsement. A bull run can also be influenced by the network effects, the FOMO (fear of missing out) effect, and the herd mentality, which amplify the demand and the price. A bull run can last for months or years, depending on the market conditions and the momentum.

Crypto and Bitcoin have experienced several bull runs in their history, each one reaching a new ATH and then followed by a correction or a bear market. The most recent bull run occurred in 2021, when Bitcoin reached its current ATH of $69,000 in November, before dropping to around $15,000 in December. Many analysts and experts believe that crypto and Bitcoin are poised for another bull run in 2024, due to various reasons, such as:

The Bitcoin Halving Event: As mentioned earlier, the Bitcoin halving event is expected to occur in May 2024, which will reduce the supply growth rate of Bitcoin by 50%. This will create a supply shock and a scarcity effect, which will increase the demand and the price of Bitcoin. Historically, Bitcoin has reached a new ATH within a year after each halving event, as shown in the chart below. Source: Below

The Crypto Innovation Rate: The crypto industry is constantly evolving and innovating, creating new products, services, and solutions that cater to various needs and use cases. Some of the most notable innovations in the crypto space are the decentralized finance (DeFi) sector, which offers alternative and accessible financial services, such as lending, borrowing, trading, and investing, without intermediaries or censorship; the non-fungible token (NFT) sector, which offers unique and verifiable digital assets, such as art, music, gaming, and collectibles, that can be owned, traded, and monetized; and the layer-2 solutions, which offer faster, cheaper, and more scalable transactions, without compromising security or decentralization. These innovations increase the utility, the adoption, and the value of crypto and Bitcoin, as well as attract more developers, users, and investors to the ecosystem.

The Crypto Adoption Rate: The crypto adoption rate measures the number and the percentage of people who use, accept, and support crypto and Bitcoin. According to the [Global Crypto Adoption Index](^1^) by Chainalysis, the crypto adoption rate has increased by 880% from Q3 2020 to Q2 2021, reaching over 221 million users worldwide. The index also shows that the crypto adoption is growing faster in the emerging markets, where people face more challenges with the traditional financial system, such as high inflation, currency devaluation, capital controls, and corruption. Moreover, the crypto adoption is also boosted by the increasing involvement of institutional investors, such as hedge funds, pension funds, and corporations, who see crypto and Bitcoin as a hedge against inflation, a store of value, and a source of diversification. Furthermore, the crypto adoption is also supported by the growing acceptance of regulators, policymakers, and lawmakers, who recognize the benefits and the potential of crypto and Bitcoin, and who seek to create a clear and favorable legal framework for the industry.

Crypto and Bitcoin are more than just digital currencies. They are revolutionary technologies that can transform the world of finance, economy, and society. They offer a new way of transacting, storing value, and accessing financial services, that is more secure, transparent, and inclusive. They also offer a new way of creating, owning, and monetizing digital assets, that is more creative, expressive, and rewarding. They also offer a new way of scaling, optimizing, and enhancing transactions, that is more efficient, affordable, and adaptable. Crypto and Bitcoin are not without challenges, risks, and uncertainties, but they also offer immense opportunities, rewards, and possibilities. That is why you should be aware of the next bull run that could.

Source: Conversation with Bing, 1/23/2024

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