Bitcoin, as a decentralized digital currency has attracted the attention of investors and analysts aiming at identifying the direction of its price fluctuations. However, just like other forms of assets, Bitcoin is also exposed to certain events that take place in the world and influence the markets. In the past, the price of Bitcoin has also been affected by such factors as political turmoil, economic embargoes, changes in the laws governing cryptocurrencies, and war. Thus, learning about these factors will help investors find out how they can influence the price of Bitcoin and make better decisions in this rather unpredictable market.
If you are looking forward to predicting the price of Bitcoin, the following can be used in a bitcoin price prediction; Historical prices, Technical analysis indicators, and Market sentiment. These predictions are made based on previous market trends, current market trends, and the effects of future events that are likely to occur in the world. For example, Binance’s price prediction tools take into consideration these analyses to give an insight into the possible direction that Bitcoin may take in the future, thus assisting traders and investors in the market.
Geopolitical Events and Its Relation to the Price of Bitcoin
Geopolitical events are any events that are political or economic in nature that can lead to changes in the geopolitical structure of the world and, therefore, the global market. Some of them are war, economic embargoes, changes in laws and regulations, trade conflict, political changes, and natural disasters. In spite of being an independent financial system that is not regulated by any government or central bank, the value of Bitcoin can be impacted by the same geopolitical events that affect other assets, including equities and commodities. Below are some of the ways geopolitical events can impact Bitcoin’s price:
Economic Sanction as a Tool and Financial Instability on the Global Stage
There is no better example of how geopolitical events can impact the price of Bitcoin directly than through economic sanctions and financial crises in a number of countries. When countries are subjected to economic sanctions, the people of those countries seek means to protect their money and check on their currency. Since Bitcoin is relatively free from geographical barriers and is a decentralized currency, it provides a perfect solution to anyone who wants to avoid certain restrictions or preserve their income.
For instance, while countries like Venezuela and Iran face economic sanctions, people turn to Bitcoin, which increases the value of the currency. Likewise, during economic vices such as hyperinflation, the masses have sought refuge in Bitcoin so as not to be further weakened by their government currency. This increased demand usually results in short-term price fluctuations, and global investors always look out for these regions for any other signs of instability.
Devaluation of Currency and Capital Flight
There are other factors that affect the price of Bitcoin during geopolitical events, such as currency devaluation and capital flight. When a particular country experiences a depreciation or a significant loss of its currency value, people, as well as investors, are forced to look for better investment opportunities in other assets. It is in such a scenario that Bitcoin, which is a virtual currency not backed by any sovereign currency, tends to be more popular.
For instance, 2020 when the Turkish currency, the lira, was badly affected due to poor economic policies and political crises, people started to store their money in Bitcoin and other cryptocurrencies. Bitcoin’s demand increased in Turkey and similar economies that faced currency depreciation, which supported the Bitcoin price growth on the global market.
Laws and Government Interference and Restriction
Another geopolitical factor that can be used to make Bitcoin price predictions is the interference by governments in the form of changes in the legal frameworks. With the increase in the use of Bitcoin and other cryptocurrencies, most governments have moved to either outlaw the use of the digital currency or try to control it. Such interventions usually cause the prices to fluctuate with a lot of frequency.
For instance, in 2021, China’s ban on cryptocurrency mining and trading greatly affected the price of Bitcoin. When China introduced tough measures that banned crypto activities in the country that is home to many Bitcoin miners, the price of Bitcoin slid and lost almost half of its value in a few weeks. Likewise, the hints of regulatory policies in the US and India have caused price volatility of Bitcoin since investors are trying to determine how the new laws will affect the cryptocurrency market.
On the other hand, an increase in prices can also be attributed to positive regulatory changes, such as the approval of Bitcoin ETFs in some countries that lead to acceptance of Bitcoin in the mainstream financial markets. This is because investors pay keen attention to regulatory statements so that they can make their Bitcoin price predictions.
Global Crises and the Need for a Safe Haven
Bitcoin has also been seen as a ‘safe-haven’ asset during periods of global unrest or when the world economy is in turmoil, as is the case with gold. In cases where there is a political crisis, such as war, diplomatic conflict, or political unrest, investors shift their funds to more secure investments. While gold has been used for this purpose in the past, Bitcoin’s virtual and limited nature might be more suitable to this end for anyone wishing to avoid geopolitical risks.
Trade War and Tariff Differences
Trade wars as well as tariff disputes between the world’s largest economies also affect the price of Bitcoin. Such occurrences results into market risk whereby businesses and investors are at the risk of incurring losses due to changes in trade and increased costs. This means that people look for other ways of preserving their wealth, and that is where Bitcoin comes in.
For instance, the trade tension between United States and China in the years 2018 and 2019 led to volatility in the markets and investors decided to buy Bitcoin and other cryptocurrencies. In the past few months, Bitcoin had its price rise significantly due to being a popular asset for investors to use in order to avoid more traditional markets that are impacted by trade tensions.
Conclusion: Positives and Negatives
Geopolitical risks are an essential factor that affects the price of Bitcoin as they change investors’ sentiment, determine the demand for digital assets, and increase volatility in traditional markets. It includes economic sanctions and currency devaluations, change in regulation, wars and other conflicts which can positively or negatively affect the Bitcoin price.