Key Takeaways
- Why Bitcoin Price Valuable?
- Supply and Demand
- Competition
- Availability on Currency Exchanges
- Regulations and Legal Matters
Bitcoin is a cryptocurrency that was developed by Satoshi Nakamoto in 2009. The name was given to the unknown creator (or creators) of this virtual currency. Transactions are recorded on a blockchain that shows each unit’s transaction history and is used to demonstrate the property.
When you invest in traditional currencies, Bitcoin is not issued by a central bank or approved by a government. Buying a bitcoin is different from buying a stock or bond because bitcoin is not a company.
Unlike investments in traditional currencies, Bitcoin is not issued by a central bank or backed by a government. Therefore, the measures of monetary policy, inflation rates, and economic growth that typically affect the value of the currency do not apply to Bitcoin.
Why Bitcoin Price Valuable?
Bitcoin price has value because people value it. The US dollar, gold, and silver are similar, based on people’s confidence that these assets will hold and hopefully increase in value. Bitcoin’s value does not take up any physical space and is, therefore, easier and cheaper to store than precious metals or fiat currencies. And Bitcoin can be sent securely all over the world without the risk of theft.
While precious metals are in short supply, more can be mined, with limited supply increasing demand. However, it is not unreasonable to predict that Bitcoin could replace gold as a universal store of value in the future.
Private parties can use Bitcoin for transactions if agreed, and it is also bought and traded by investors on exchanges. You can buy bitcoins through cryptocurrency exchanges. However, be aware that the legality of Bitcoin varies from country to country and some countries absolutely prohibit the use of Bitcoin. The University Library of Congress publishes a detailed report on its worldwide regulatory status.
Bitcoin is a volatile investment considering the basis of the coin price. When the coin first hit the market in 2009, it did not have an official price as it was not sold. However, when the first exchanges began to appear, a development price developed.
The price was small initially, just pennies, and it didn’t even track the stocks in the market. It wasn’t until 2013 that Bitcoin started to take off. As of October 2013, the price of Bitcoin was $123.50. It started to rise rapidly, reaching more than $140 in April and more than $1,000 in December of the same year.
Bitcoin hit $1,000 in 2017, seven years after first trading. But that was also the year that volatility caught the attention of the mainstream investment community. By May 2017, BTC had passed the $2,000 mark.
As of September 2017, the Financial Conduct Authority. (FCA), the UK’s financial regulator had warned consumers and JP Morgan CEO Jamie Simon claimed Bitcoin was a “scam”.
In December 2017, the coin topped the $20,000 level before falling sharply. With an unprecedented boom, the price fell in 2018, halving to $10,000 in February, and finally bottoming out at $3,000 in December.
Since then, the Bitcoin market has become increasingly volatile. In 2019, it appreciated in value over the summer to return to $11,000 levels, then dropped back to $7,000 by the end of the year.
BTC fell to $5,000 in March 2020 as it was not immune from the widespread sell-off in financial markets at the start of the global Covid-19 pandemic. Rebounded and rebounded strongly for the remainder of the year to beat all-time highs to hit $29,000 by the end of December.
The rally continued until early 2021 when the cryptocurrency surged to $58,330 in February before pulling back.
Bitcoin’s price is very volatile, partly due to the liquidity (the ability to buy and sell quickly) of the currency. The number of bitcoins flowing through the market at the same time gives investors the ability to quickly get in and out of positions.
When people are trading a large amount of a particular asset, it becomes more difficult for one person or event to change that price in one direction only. Think of it as a jet of water — you can divert a small stream by laying out some boards.
But if I wanted to divert the Mississippi I would have a much more difficult time because there is just too much.
Bitcoin prices are influenced by the following factors:
- Supply and Demand
One of the main factors influencing the price of Bitcoin is its supply and demand. Only with stocks are there more buyers than sellers when there is high demand for a stock, so it can be assumed that the price of the underlying asset is expected to increase.
Currently, the total number of bitcoins available for purchase is limited to 21 million. When this limit is reached, no more coins can be mined. Bitcoin supply initially reached 16.8 million. In 2017 and on February 24 of this year, 18.63 million bitcoins were in circulation, so that only 2.362 million bitcoins can be entered.
We can see that roughly 90% of the total available bitcoins have already been mined and made available to the public. As we would have studied in our first business class, the price of a product rises when demand cannot keep up. With delivery.
Countries without fixed foreign exchange rates can partially control how much of their currency circulates by adjusting the discount rate, changing reserve requirements, or engaging in open-market operations. With these options, a central bank can potentially impact a currency’s exchange rate.
The supply of bitcoin is impacted in two different ways. First, the bitcoin protocol allows new bitcoins to be created at a fixed rate. New bitcoins are introduced into the market when miners process blocks of transactions, and the rate at which new coins are introduced is designed to slow over time. For example, growth slowed from 6.9% (2016) to 4.4% (2017) to 4.0% (2018).
This can create scenarios in which the demand for bitcoins increases at a faster rate than the supply increases, which can drive up the price. The slowing of bitcoin circulation growth is due to the halving of block rewards offered to bitcoin miners and can be thought of as artificial inflation for the cryptocurrency ecosystem.
Secondly, supply may also be impacted by the number of bitcoins the system allows to exist. This number is capped at 21 million, where once this number is reached, mining activities will no longer create new bitcoins.
For example, the supply of bitcoin reached 18.587 million in December 2020, representing 88.5% of the supply of bitcoin that will ultimately be made available.2 Once 21 million bitcoins are in circulation, prices depend on whether it is considered practical (readily usable in transactions), legal, and in demand, which is determined by the popularity of other cryptocurrencies. There are many factors that drive up Bitcoin’s demand.
Here’s a list of some of the most important factors that affect Bitcoin’s demand:
- Inflation of fiat currency. If a country’s currency is suffering from inflation, more people demand Bitcoin. This is because Bitcoin is much less likely to depreciate in value less than a currency suffering from inflation, especially if the country is suffering from hyperinflation.
- The media. The media plays a large role in stimulating market demand for Bitcoin. As Bitcoin’s price rises, more media outlets give the commodity coverage and market demand for Bitcoin rises.
- Regulation. Government regulation can impact market demand either positively or negatively. Regulation makes cryptocurrencies more safe and accessible. However, these regulations may deter some investors from buying Bitcoin in the short-term due to increased taxes and more transparent consumer identification.
- Politics. Bitcoin’s price often rises when the government becomes more unstable. Because the U.S. government controls the dollar, less people trust fiat currency when the government is unstable, resulting in an increase in demand for Bitcoin.
Competition
While Bitcoin is the world’s most popular cryptocurrency with the largest market capitalization, you can now buy more than 1,000 digital currencies. The presence of competition ensures that the value of an investment is kept under control.
For example, there is a good chance that the value of the US dollar would have been different had it not been for currencies like the euro, pound, and yen.
While Bitcoin is the most famous cryptocurrency, hundreds of other tokens are vying for the user’s attention. While Bitcoin remains the dominant choice in terms of market capitalization, Altcoins like Ethereum (ETH), Tether (USD), Finance Coin (BNB), Mariano (ADA), and Polka dot (DOT) are among the competitors.
Closer to March 2021. Also, due to the relatively low market entry barriers, new Ico’s (Initial Coin Offerings) are constantly on the horizon. The crowded field is good news for investors as widespread competition keeps prices down. Fortunately for Bitcoin, its high visibility gives it an edge over its competitors.
Internal governance
Since Bitcoin is not regulated by a single agency, miners are there to process transactions and secure the blockchain. If the miners want to modify or change the software, it has to be the consensus decision.
The Bitcoin community believes that solving basic problems can take longer than expected. Currently, Bitcoin software can only process three transactions per second, which is incredibly slow given its popularity
The bitcoin community is looking for ways to improve scalability and increase numbers. In some cases, when applied, these changes become an entirely new cryptocurrency, just like Bitcoin Cash and Bitcoin Gold. Software changes are based on consensus, which tends to frustrate the Bitcoin community as fundamental issues are often time-consuming. Time to resolve.
The scalability issue was a particular pain point. The number of transactions that can be processed depends on the size of the blocks and Bits. Currently, the OIN software can only process about three transactions per second
While this wasn’t a problem when demand for cryptocurrencies was low, many feared that low transaction speeds will lead investors to competitive cryptocurrencies. The community is divided on how best to increase the number of transactions.
Changes to the rules for using the underlying software are known as “forks”. “Soft forks” refer to rule changes that do not result in the creation of a new cryptocurrency, while “hard fork” software changes result in new cryptocurrencies. Earlier bitcoin hard forks included bitcoin cash and bitcoin gold.
Availability on Currency Exchanges
Various cryptocurrency exchanges allow investors to buy and sell bitcoin when connecting buyers and sellers in one market. Networks are then built across these markets as the exchange gains popularity. It also becomes easier for exchanges. Attract more participants.
Is influenced by availability on exchanges as it has a direct impact on the popularity of cryptocurrencies due to the increase in market participants.
The more popular Bitcoin becomes, the greater the demand, and as mentioned earlier, there is a finite amount of Bitcoin. So here the supply is limited, even if the demand increases.
Just as stock investors trade stocks on indices like NYSE, Nasdaq, and FTSE, crypto investors trade cryptocurrencies on Coinbase, GDAX, and other exchanges. The platforms allow investors to trade cryptocurrency / currency pairs (e.BTC / USD or Bitcoin / U.dollar).
The more popular an exchange becomes, the easier it is to attract additional participants in order to achieve a network effect. Using your leverage in the market, you can set rules that govern how other currencies are added.
The publication of the SALT (Simple Agreement for The Future Tokens Framework), for example, aims to define how IOS can comply with securities regulations. The presence of Bitcoin on these exchanges implies a certain level of regulatory compliance regardless of the legal gray area in the EU that operates cryptocurrencies.
User adoption/Cost
Although bitcoins are virtual, they are still manufactured products and have real production costs, with power consumption being by far the most important factor.
The so-called Bitcoin mining is based on a complicated cryptographic mathematical problem that all miners compete to solve: The first one to do this is found rewarded with a re-minted Bitcoin block and any transaction fees incurred since the last block.
The special thing about the production of Bitcoins is that the Bitcoin algorithm, in contrast to other manufactured products, only finds a Bitcoin block every ten minutes on average.
This means that the more producers (miners) join the competition to solve the math problem, only makes it more difficult and therefore more expensive. Solve to get this ten-minute interval. Research has shown that the market price of Bitcoin is closely related to the marginal cost of production.
Over the past 12 months, the price of Bitcoin has gained significant momentum due to an outstanding surge in the adoption rate among institutional investors. In the past, it was retail capital that drove the price of Bitcoin up.
However, crypto experts believe the bull run since March 2020 has been due to widespread adoption by institutional investors, including a billion-dollar giant like Tesla, Square, Microstrategy, and MasterCard. This growing popularity has led to a surge in the prices of Bitcoin and several other cryptocurrencies, including Ethereum. and Litecoin.
Bitcoin Miners
Bitcoin miners influence the supply in the Bitcoin market uniquely. Miners secure the Bitcoin network with computing power and are paid in the form of transaction fees and block rewards. Block reward is the amount rewarded for completing a block on the blockchain Currently 6.25 bitcoin per block.
These rewards are freshly minted bitcoins and the reward is halved every 4 years during the so-called bitcoin halving. Bitcoin will cut its block reward in half in 2024. Bitcoin miners can keep their bitcoins, but many large traders sell their bitcoins in the market as soon as they receive the block
rewards. Miners sell their bitcoins to secure profits and avoid bitcoin’s volatility. Since the price of Bitcoin is determined by supply and demand, the price of Bitcoin will drop as these newly minted Bitcoins are launched.
Electricity Costs
The cost of electricity affects the price of Bitcoin as miners use large amounts of electricity to mine Bitcoin. When the price of electricity is low, miners can benefit more from Bitcoin, which means they are more likely to sell their Bitcoins for a profit if they pay less.
On the contrary, if the price of electricity exceeds the price at which miners can sell bitcoins for a profit, it is better that they do not win anything.
The Bitcoin market is influenced by many events. If a big government isn’t sure how to regulate Bitcoin, as has been done in China, the price can fall. There are other factors that affect Bitcoin prices as well.
There is a limited number. Of bitcoins. Available, and they occur at a predictable rate. Ownership of these bitcoins is unevenly distributed — some bitcoin giants have large sums of money in their wallets (digital storage). This,
combined with the liquidity, makes it easier for people to manipulate. In some cases, the price can be lowered by large merchants who sell bitcoins in bulk. One of these traders, called Erewhile, temporarily crashed the market by selling a large portion of Bitcoin below market value.
You need to be careful about your Bitcoin trading strategy. Bitcoin is an extremely high-risk asset and even the most experienced traders can lose money in a very unpredictable and volatile market. This is not a reliable way to increase the income potential of your retirement.
