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Summary:

Although bitcoin is a speculative market, a new research report suggests that its price may be tied to standard market movements.

HONG KONG - FEBRUARY 28: A worker holds a sign at the first bitcoin retail store open in Hong Kong on February 28, 2014 in Hong Kong. Asia Nexgen, a Hong Kong based bitcoin exchange has launched a physical store enabling customers to purchase bitcoin and store it in their digital bitcoin wallets. Bitcoin Group HK and Hong Kong Bitcoin ATM plan to launch bitcoin 'ATM's machines in the area. in 2008 Bitcoin was launched as an alternative currency, with the commodity boasting the ability to be transferred without the need of the traditional monetary banking system. (Photo by Lam Yik Fei/Getty Images)
photo: Lam Yik Fei/Getty Images

In this week’s bitcoin review, we take a look at a new research report that analyzes bitcoin’s market drivers.

Data mining shows bitcoin’s market movers

One advantage of bitcoin’s public ledger is that the data — number of transactions, amount, bitcoin supply — is all there and available to the public. Ladislav Kristoufek at the Charles University in Prague, Czech Republic, decided to take advantage of the data to try to investigate some of the most widely held ideas regarding what moves bitcoin’s price up and down. In his research, Kristoufek was able to identify a few things that appear to drive the bitcoin price market, but also discard some other theories.

First, Kristoufek eliminated two popular theories: that it’s an investment vehicle and we should blame China. Kristoufek found that bitcoin doesn’t seem to be a safe haven investment like gold nor does the Chinese market influence the USD one. While a lot of the extreme drops and increases coincide with the Chinese regulation or dramatic events within China, Kristoufek found no relation between the Chinese market volume and the USD price although they do move together.

However, while bitcoin is a speculative market, it does react to traditional market measures like usage in trade, money supply and price level in the long term. Bitcoin is also technologically driven by the mining community, although Kristoufek found that the mining community’s effect on the price is playing less and less of a role as it became harder to mine bitcoin.

The price also reacts to investment interest — something we may be seeing happen right now. CoinDesk reported today that VC investment is already up 30 percent from last year’s total investment. The report from CoinDesk statistics said $113.2 million has already been invested this year with some high profile closing rounds, like BitPay’s $30 million, drawing interest (and maybe driving prices) of the cryptocurrency.

The market this week

It’s been another good week for bitcoin. There were a couple dips, but overall the price climbed to $656.06 at closing on Thursday, $40 above last week’s closing price. It remained steady around $654.12 as of 10:15am PDT.
bitcoin price june 5
For background on why we’re using Coindesk’s Bitcoin Price Index, see the note at the bottom of the post. 

In other news we covered this week:

Here are some of the best reads from around the web this week:

Bitcoin in 2014

Bitcoin price is about $100 short of where it started the year.

The history of bitcoin’s price

A note on our data: We use CoinDesk’s Bitcoin Price Index to obtain both a historical and current reflection of the Bitcoin market. The BPI is an average of the three Bitcoin exchanges which meet their criteria: Bitstamp, BTC-e and Bitfinex. To see the criteria for inclusion or for price updates by the minute, visit CoinDesk. Since the market never closes, the “closing price” as noted in the graphics is based on end of day Greenwich Mean Time (GMT) or British Summer Time (BST). 

Photo from Lam Yik Fei/Getty Images

  1. Kenton Sallee Friday, June 6, 2014

    Nice balanced article. I’d venture to say the adoption and use of BTC is more important than its price on the exchanges, but they are probably married at this point. Having a “currency” that acts like a stock is a bit scary, especially when there are some people/entities who hold an extremely large percentage. That said, I love using BTC and I shop for non-necessities (aka toys) almost exclusively in BTC. I see a big drop in price and buy some Bitcoin, then when I see a sudden surge I buy something using it. It’s quite fun…like gambling, hunting for discounts, and experimenting with a new paradigm all at once. If you’ve made it this far I have one request: I’ve noticed the weekly Bitcoin updates are almost entirely about the stock price, and I think that’s a shame because there’s a lot more going on. Please expand to the uses and technology itself. The exchange rate is the most exciting but also the most boring aspect, depending on where you’re looking at it from.

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    1. Hi Kenton — Thanks for the comment and the feedback. The initial idea behind the weekly roundup was to focus on the market and its graphics. However, I agree that there is a LOT more happening in the bitcoin space, which I will try to highlight more in the roundup while keeping the normal market sections. For the most part, the most recent major news tends to be exchange/price focused :) Thanks again for the feedback, and I’m glad you enjoy reading it every week.

      Biz

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  2. Nice arcitle. I think there is a lot more that drives the market up for Bitcoin and other Cryptocurrencies. I think a big driver is media exposure. I wonder what we can see if we would compare the amount of media exposure worldwide and the interest of a certain cryptocurrency after that. I predict that you will see a big correlation.

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  3. Drive By Poster Sunday, June 8, 2014

    As with all markets Bullshit is driving it

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  4. average guy Sunday, June 8, 2014

    This cryptocurrency is good to offset the fed and other fiat currency. At least it gives the feds a run for the money. Competition is good.

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  5. LT bit coin chart looks just like gold. Uh oh….

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