Determining the Value of Bitcoin: 5 Factors to Consider
Value of Bitcoin
Determining the Value of Bitcoin: 5 factors to consider choosing the value of bitcoin: 5 factors to consider selecting the value of bitcoin: 5 factors to consider
How much is bitcoin worth today? One of the first questions we ask ourselves when we wake up in the morning… and that’s normal. With its extreme volatility, who knows where the price of bitcoin can go in one night?
In 2009, NewLibertyStandard, an influential forum user, established the first bitcoin (BTC) exchange rate: 1 USD = 1,309.03 BTC. At the time of inscription, the price of BTC hovers around 35,000 USD.
You are probably thinking about how the value of bitcoin lives by playing up and down, and so do our emotions. It happens to us too!
Five Factors That Can Influence The Price Of Bitcoin
1. Supply and Demand
We contain all heard about the law of supply and demand before in our basic economics classes. Virtually anything of value follows this law, and bitcoin is no exception. If you are not familiar with the concept, in a nutshell, the law of supply and demand is based on three fundamental principles:
- The law of demand: the higher the charge, the lower the demand
- The law of supply: the higher the price, the sellers will offer more of an economic good
- Together, these two laws determine the market price and volume of particular interest.
How does this apply in the world of bitcoin? Two aspects are affected by these concepts:
Value of Bitcoin
First, let’s talk about the rate at which a new bitcoin is created. The current protocol allows a bitcoin to be made at a specific rate. As we already know, when miners process blocks of transactions, a new bitcoin is created and introduced to the market. However, many people do not understand that this process is designed to slow down over time (via Bitcoin halving ). This can lead to scenarios where the demand for BTC increases faster than the supply. In that case, the price could go up.
The other aspect is the bitcoin supply limit. Satoshi Nakamoto designed Bitcoin with a limit of 21 million BTC. Once that limit is reached, miners will no longer be rewarded new BTC for verifying transactions. When this happens, the block reward halving that happens every four years may not affect the price of BTC. Instead, practicality and usefulness in daily life will determine what gives bitcoin value.
2. Production Cost
Although bitcoin strictly a digital asset, it still a product that needs to produce. For the most part, the cost of producing BTC is derived from the electrical consumption of the mining process.
Bitcoin mining a process where miners solve complex cryptographic math problems and reward with freshly mined BTC. Miners often consume a lot of electricity to solve these math problems, which built into the value of bitcoin.
As more and more miners join, the competition increases. As the competition increases, solving math problems becomes more difficult. On average, a single block takes ten minutes to verify. When the situation becomes more complex, solving it can cost more, especially if you want to preserve that ten-minute window.
3. Bitcoin Competition
Bitcoin is easily the most popular and documented cryptocurrency in the world. However, thousands of other cryptocurrencies are trying to get our attention.
This crowded space allows for greater diversity in an investment portfolio, making the playing field attractive to investors. Due to competition, the value of bitcoin can hold up quite firmly. It’s safe to say that if bitcoin were the only cryptocurrency, the price could be totally different.
4. Sales Regulations
Since bitcoin is a relatively new asset, regulators have long debated how to classify it. These constantly change some regulations such as taxes, among other things. Therefore, it can be difficult for governments to take this position.
Since bitcoin decentralize, meaning it tied to any specific central government, regulations can directly impact the price because they apply to investors. If there is fear over a particular government statement or decision, this could cause the BTC price to drop.
To this day, the regulations imposed on BTC will differ significantly depending on how a country perceives the currency. In most cases, if regulators take at least a neutral view on bitcoin, they will impose rules like KYC ( know your customer) and AML (anti-money laundering) on high-volume traders and investors.
5. Media Coverage
How can the media not play a big role in the price of bitcoin in the world we live in? Many studies delve into this relationship, but in simple terms, the theory is that positive media attention is a possible answer to why bitcoin continues to rise. Conversely, negative attention can lead to a drop in price.
In general, it believe that the media allows more people to understand the basic functionality of bitcoin better, thus attracting more people to the idea. In today’s age of social media, positive news like that can spread quickly. You find an article online that highlights the advantages of using bitcoin, and you feel enlightened after reading it. Surely, you will talk about it with your friends and family, and they will do the same.
A step Forward
Even though these are some of the most significant factors influencing the current value of bitcoin, it is essential to understand that these cryptocurrencies are constantly evolving, which means they can still change over time. As for where it head and what updates came, we can only wait and see.
Maybe we’ll get more answers soon, or maybe not. The best we can do is stay informed. Learn as much as you can about bitcoin, and you might not only minimize the risks but also know how to react when something happens. Trust us; something will happen. In this game, knowledge is power, so make sure you always keep learning and never settle.
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