Well, What Determines The Value of Bitcoin?
Ever wonder as to what determines the value of Bitcoin? Bitcoin’s price in the year 2017 had experienced exponential growth. This has resulted in price breaking the physiological barrier of $10000. The price since then has exploded to a near $20000 taking the spotlight away from most Altcoins. So, what are the factors that influence bitcoin’s price? And what can be the main reasons that led to such a parabolic increase in its price?
Bitcoin came into existence after the global recession of 2009. It was worth less than a dollar for several months after its initiation. However, the technology behind it quickly gains attraction pulling the price to newer highs. There are several bases for Bitcoin’s appreciation. This can be Crypto going mainstream or startups integrating Cryptocurrency into their platform. Besides, there can be many other reasons as to what determines the value of Bitcoin in addition to these below.
One of the major reason for Bitcoin’s price fluctuations comes from speculation. Speculation drives Bitcoin’s price more than any other reason. People tend to buy Bitcoin speculating that its price will go up, in turn, driving the price even higher. For many, this might seems an offset reason to buy Bitcoin.
But when it comes to gold and silver, or even equity, most traders are using speculation to bet on their money! Of course, if Bitcoin’s price is consolidating between a tight price range, investors will use technical indicators to speculate their returns.
The decentralization of Bitcoin adds another influencing the Bitcoin’s price. All the fiat currencies in the world are centralized and controlled by institutions or governments. Even your Paypal dollars are not entirely owned by you. These institutions can limit your funding and in some cases, even prevent you from using their platform or locking your funds for a certain period.
In comparison, Bitcoin cannot be printed by a single entity and is not manage by any institution. It is a completely open-source and decentralized currency, and even you can mint it. Further, no single organization can control its supply to manipulate the market. Just think of an ASIC mining rig in your house printing your Bitcoins. Yes, every individual can be their own bank in Bitcoin!
Demand and Supply
Bitcoin is a decentralized asset with a maximum supply of only 21 Million Coins. This means that the supply of Bitcoin would be perfectly inelastic in the future. Meaning, that once all of 21 million coins come into existence, the supply would be permanently be locked and will not affect the price.
This would turn out to be a very profitable scenario for many traders as an increase in demand would only signal a rise in price. Since there will be no more Bitcoin to ease the Demand side pressure from buyers, we will likely to see Bitcoin making new highs in the year 2140!
When talking about the reasons as to what determines the value of Bitcoin its acceptance by retailers and corporations cannot be ignored. The probability that the giant online shopping stores or Tech companies might accept it as a method of payment shortly furthers leads to the determination of Bitcoin’s price.
As per estimates, about 25000 stores accept Bitcoin as payment method in Japan alone. Further, the number is set to triple in a few months. Moreover, several other companies such as Bitpay, Coinbase Commerce, are stepping up their services for acceptance of digital currencies. These measures will likely lead to a significant expansion for Bitcoin’s acceptance influencing its price!
Cost of Mining
One of the reasons for Bitcoin to have a price is its mining operations. Although it is might not seem a major factor that can influence its value, but still, miners tend to have some impact on it. Miners run their machine to solve a complex algorithm that validates Bitcoin transactions and secures the network. In return, they are awarded newly generated Bitcoins.
To cover the cost, the miner needs Bitcoin’s price to be at a certain level where they can cover their expenses and make decent profits. If Bitcoin’s price goes down, miners tend to wait for it to surge to cover their cost. As more people mine Bitcoin using their ASIC hardware, the gravity of people unwilling to sell their coins below a certain price holds a tight stop to the currency’s supply exerting pressure on its price.