What drives Bitcoin, Ethereum and the majors?
Learning objectives
Describe the supply mechanics of Bitcoin and Ethereum and how they differ
Rank the demand-side drivers that move crypto prices
Explain why crypto's drivers are less established than those of other asset classes
Why crypto prices move
Crypto has genuine drivers. It also has a much shorter history than any other asset class in this academy, which means the relationships are less tested and change more often. Both facts belong in the same lesson.
Supply: Bitcoin
Bitcoin's supply schedule is fixed in software and known in advance, which is unusual among traded assets.
The total supply is capped at 21 million coins. New bitcoin enters circulation as a reward to miners for producing blocks, and that reward halves roughly every four years, an event known as the halving.
Two things follow.
Issuance declines over time toward zero, which is the basis of the scarcity argument for holding it.
The halving is entirely predictable. Everyone knows when it will occur and by how much. Which, applying the logic from The big four: NFP, CPI, interest rates and GDP, means the market has had years to price it. Content presenting a halving as a guaranteed catalyst is ignoring that markets price known future events in advance, and the historical sample of halvings is small enough that confident conclusions from it are unwarranted.
Supply: Ethereum
Ethereum works differently and it's worth knowing why.
There is no hard cap. Issuance is variable, and it changed materially when the network moved from proof-of-work to proof-of-stake, which sharply reduced new supply.
A portion of transaction fees is destroyed rather than paid out. When network activity is high, the amount destroyed can exceed new issuance, making supply contract. When activity is low, supply expands.
So Ethereum's supply responds to how much the network is being used, which ties it more closely to actual usage than Bitcoin's fixed schedule does. Bitcoin's supply story is about scarcity. Ethereum's is about activity.
Ethereum also supports staking, where holders lock coins to help secure the network and receive a yield. That has two effects: it removes coins from circulating supply, and it gives ETH a return that Bitcoin doesn't have. Note that a CFD holder receives none of it, as Crypto CFDs vs spot: what's the difference explained.
Demand: what actually moves price
Supply is scheduled and slow. Demand is where the movement comes from.
Macro liquidity conditions. The strongest relationship of the last several years. Crypto has behaved like a high-sensitivity risk asset, rising when monetary conditions loosen and falling when they tighten. Interest rate expectations move crypto for much the same reason they move the Nasdaq, as What moves index markets described, and often harder.
Institutional and product flows. The launch and growth of regulated investment products has given large pools of capital an easier route in. Flow data into and out of these products is watched closely and can move price.
Regulation. Enforcement actions, legislative developments and licensing decisions move crypto more than they move most asset classes, because the regulatory position remains genuinely unsettled in many jurisdictions. This cuts both ways and arrives unscheduled.
Adoption and usage. Payment integrations, network activity, developer growth. Slow-moving and structural, mattering more to Ethereum than to Bitcoin given the supply link above.
Narrative and positioning. Worth stating honestly. Crypto is more narrative-driven than other asset classes, and leverage in the ecosystem is high, which means positioning unwinds can produce moves far larger than the news that triggered them. A liquidation cascade is a real and recurring phenomenon.
The majors beyond Bitcoin and Ethereum
Most platforms offer a handful of others. Two things generally hold.
They correlate strongly with Bitcoin. When Bitcoin moves sharply, most of the market moves with it. Holding three different crypto CFDs is generally one position at triple size, which is the correlation problem Managing leverage as a beginner covered and it's more pronounced here than in any other asset class.
They're more volatile and less liquid than Bitcoin or Ethereum, with wider spreads and more severe moves.
The practical implication is that the diversification most beginners think they're getting from holding several does not exist.
What you need to know
Two things need saying plainly.
These relationships are less established than the ones in other courses. The link between real interest rates and gold has decades of data. The link between rate expectations and equity valuations has a mechanism you can write down. Crypto's macro relationships are a matter of a few years, through one broad cycle, and it would be reasonable to expect them to change.
The narratives change faster than the fundamentals. Crypto has been described as digital gold, as an inflation hedge, as a technology bet and as a liquidity proxy, sometimes simultaneously. It has not consistently behaved as most of those, which Crypto correlations with traditional markets examines with the evidence.
Neither point makes crypto untradeable. Both mean you should hold any framework here more loosely than you'd hold one for currencies or metals, and size accordingly.
Key takeaways
Bitcoin's supply is capped at 21 million with a halving roughly every four years. Being fully predictable, it's had years to be priced in
Ethereum has no hard cap. Issuance is variable and fee burning can make supply contract when network activity is high, tying it to usage rather than scarcity
Macro liquidity conditions have been the strongest driver, with crypto behaving as a high-sensitivity risk asset alongside regulation, flows and positioning
Crypto's drivers rest on a few years of data through one broad cycle. Hold any framework here more loosely than you would for currencies or metals