On-chain metrics, utility, and sentiment are all factors that help predict the trends of Bitcoin price. They aren’t 100% accurate, self-fulfilling prophecies. In reality, all that matters is one thing: demand and supply. More importantly, demand alone has the ability to sway the Bitcoin price.
Supply doesn’t change all that drastically thanks to miner output, but demand is quite dynamic. Orderbooks and orderbooks alone dictate the price of Bitcoin – nothing else.
If Bitcoin was stock, we would definitely agree that the state of internal functioning is the most important aspect, as that is how investors price a share and take investment actions. However, Bitcoin has no intrinsic value, so there is no accurate pricing algorithm or multiplier that could accurately determine Bitcoin price.
So how does the Bitcoin price form? Demand and supply on exchange orderbooks more or less determine what the price looks like. This gets recreated across multiple exchanges through economic forces, but the prices aren’t always exactly the same. You can send a billion-dollar transaction over Bitcoin if the price of each unit is $5,000 or $500,000. Sentiment can be poor at $20,000 or $2,000, depending on prevailing market conditions.
There is no price requirement for using Bitcoin. So the economic forces, i.e. miners and investors, are in the cockpit of the Bitcoin market dictating how it flows. Sometimes supply is just too much to be soaked up by demand, so the price falls. Most of the explosive price action in bull markets is caused by huge demand surpluses. Retail driven manias push a lot of new money into the market – more money than is expected on a regular day. This price action cascades and causes parabolic price action.
In every market, demand and supply are the only two factors that dictate price, but there are a number of other variables that dictate demand and supply. In Bitcoin, none of this actively quantifiable; there are no earnings, cash flows, or anything else to back the asset. Bitcoin is just Bitcoin.
Because there are far fewer variables, Bitcoin’s price is a function of just demand and supply. As mentioned before, supply is relatively static compared to demand, so each period’s orderbook demand, or buys, are the real determinant of Bitcoin price.
On-chain metrics are not useless though. Demand is mostly a result of renewed sentiment, so tracking sentiment through various means does make a lot of sense. The NVT ratio, coin days destroyed, and other on-chain data goes a long way in predicting price movement accurately. My entire thesis is that demand is the sole driver, and sometimes, these readings may not depict reality, or they may be overpowered by a sudden burst or reduction in market demand.
To summarize, a number of metrics can be used to predict the Bitcoin price, but demand is the king of it all.