The bitcoin price is subject to many moving parts, most notably investor sentiment which dictates the price on a daily basis more than anything else. It was initially thought that the degree of BTC adoption would be the main determinant for the price of bitcoin, but in reality, this isn’t really the case – at least, not in the short term. Let’s look at what BTC adoption is and what really drives bitcoin price:
Bitcoin adoption is a function of the number of people using the cryptocurrency as a means of paying for goods and services. In short, the higher the number of people using the currency, the greater the levels of adoption. But the term is also used to denote more niche uses, such as nodes and servers supporting the network, trade volume on exchanges, and BTC related projects across the globe.
Obviously, the end goal of Bitcoin is widespread adoption by everyday users, especially at the retail level, where consumers would have the option to use BTC or fiat at the point of sale. Many people claim that more mining nodes are indicators of BTC adoption, but that’s something of a stretch.
To put it simply, BTC adoption is not really correlated to the Bitcoin price. First off, there are varying metrics for ‘Adoption’. The most common metric is the trade volume. But this trade volume is largely based on larger exchanges among traders, not among regular people.
What can happen is that a country or nation launches initiatives that are Bitcoin-friendly. Countries such as Malta, Bermuda, or Switzerland are known to be very hospitable to bitcoin and to blockchain in general. When projects or initiatives are announced that encourage adoption, trade volume and Bitcoin price tend to spike upwards. In this way, BTC adoption could be loosely correlated to the Bitcoin price.
It is more accurate to say that BTC adoption does not correlate to the price of BTC on a short term basis. There’s too much speculation and a lack of reliable data. Additionally, the trade volume and mining power are centralized, occurring in certain regions. However, in the long term, BTC adoption will have an effect on the Bitcoin price. As more users come to the network and the features continue to get better, the price will stabilize and slowly move upwards.
When adoption reaches a certain point, it has a certain domino effect, known as the hundred monkey syndrome. When one in a hundred people, do a certain thing, it has a knock-on effect so that everybody else starts to use it and it becomes a commercial necessity.
BTC adoption starts slowly. But after a certain threshold is crossed, BTC adoption will have a huge effect on the Bitcoin price. Bitcoin trade and adoption will no longer be centralized but will be a common feature across jurisdictions, which will have a hugely positive effect on the Bitcoin price. This is the power of the network effect.