Bitcoin was created all the way back in 2009 by Satoshi Nakamoto and became the most popular and highly valued cryptocurrency to ever exist. It was also the first cryptocurrency to be created and functioned by recording transactions on something known as a blockchain. This means that bitcoin trading is extremely secure as it is not possible for someone to launch a cyber attack and steal your assets. There are a number of factors that can influence the price of Bitcoin at any moment in time. Below we discuss the most important things that can change Bitcoin’s price.
What Determines Bitcoin’s Price?
The currency that we are all used to using has government backing, and the central bank issues it. This means that our currency can be influenced by things like inflation rates, monetary policies, and growth measurements of our economies. Because Bitcoin is independent and unregulated, the cryptocurrency is not affected by any of these factors. Instead, the price of Bitcoin is mainly influenced by the supply and demand of Bitcoin in the market as well as the price for the mining bitcoin process. Other factors affecting price include things like other competing cryptocurrencies as well as the news and media, especially when the topic of regulation and sale of Bitcoin is being discussed.
Effects of Supply on Bitcoin’s Price
One of the most important factors affecting the price of Bitcoin is the supply and demand of the cryptocurrency. If the demand for Bitcoin is high and there is not a lot of supply or people selling, then the price of Bitcoin will go up. On the other hand, if there are plenty of sellers without the same demand, then the price will drop. The number of bitcoins to enter circulation is finite, with a maximum of 21 million Bitcoin to ever exist. The rate at which new bitcoins can be created is a fixed rate that has been designed so that this rate slows down over the years.
Bitcoin’s Price and Demand
In recent years, institutional and retail investors have become increasingly interested in the crypto market, which has caused a spike in demand for Bitcoin. This has been pushed even more by extensive media coverage of the price movement of Bitcoin during spikes. Other factors influencing the demand include countries that have inflation rates that are very high, as well as currencies that have little value. An example of a country like this is Venezuela which has had increased interest in incorporating Bitcoin into its economy as a new deregulated currency.
Because the number of Bitcoins is finite, as people begin to save up the cryptocurrency, the value of Bitcoin will go up as the supply will slow down over time. The price of Bitcoin still currently fluctuates quite considerably and is volatile to factors that can impact the price heavily.
Production Costs and Bitcoin Price
The production cost of Bitcoin refers to the price of all the equipment and electricity used to complete the bitcoin mining process. It also incorporates a cost relating to how difficult the algorithm is to crack to unlock the bitcoin during the mining process. Bitcoin mining is the process of miners solving complex calculations for an encrypted number. The first person that is able to do it will receive a few new Bitcoins that they get to keep for themselves.
How Competition Affects Bitcoin’s Price
Bitcoin is the first cryptocurrency to ever be created, and it is the most well-known coin in the crypto scene. However, nowadays, there are thousands of different cryptocurrencies, all looking to become the next big coin. Although Bitcoin still dominates the cryptocurrency market, it has lost some of its power, making up just under 50% of total market capitalization.
Effects of Media and News
If you have ever turned on the news, you will have likely seen Bitcoin being covered in some kind of way, whether it is positive or negative. Some examples of positive news about Bitcoin would be the cryptocurrency being accepted as a form of payment in certain countries or companies, which usually causes the price of Bitcoin to spike. On the other hand, if there is news that suggests the price of Bitcoin is too high, then you will be likely to see a drop in the price of Bitcoin. The power of the media and news outlets is huge as information can travel worldwide extremely quickly, whether or not the information is accurate or true.
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