The Secret of The Worth of Bitcoin and Therefore The Factors affecting its Price. In short, Bitcoin has value because it’s useful and used as a sort of money.
it’s the characteristics of circulating money that we mentioned earlier during this article, it’s true that it lacks confidence supported the governance of centralized monetary or financial authorities like traditional currencies, but it’s backed by mathematics, cryptographic rules, consensus mechanism and POW that has proven its quality and superiority in creating a secure entity And transparent for digital currencies.
you have got to recollect that each one that’s required for any sort of money, real, tangible or virtual so as to possess value and maintain it’s trust and general acceptance, and now Bitcoin has succeeded greatly in recent periods and now may be specifically measured through The demand for it by users, merchants and plenty of commercial entities, and its acceptance as a way of payments, additionally to the demand for it as an investment tool and a store valuable, otherwise its prices wouldn’t have reached what they need reached.
From an economic perspective, which determines the worth of the commodity / or currency in circulation on the premise of two main factors, namely, utility and scarcity, utility increases demand thanks to the intrinsic value that the asset possesses, and scarcity increases the will to get the rare asset with value as a store for it, and Bitcoin BTC was able to meet them Significantly:
Benefit of Bitcoin and The Factors affecting its Price
The remarkable development of e-commerce and electronic add general has greatly contributed to making the necessity for electronic payment methods, which simply led to less use of traditional currency and also the emergence of the thought of direct exchange valuable between two parties through an electronic medium, but this transformation successively needs safety, transparency, reliability and accuracy, and also the emergence of Cryptocurrency, led by BTC, has provided solutions to those problems through its decentralized infrastructure, making direct money transfers fast, traceable, transparent, and immutable.
This currency and also the guarantee of its existence, as well as we do not forget the most important point, which is to preserve its value.
Rarity
Bitcoin and lots of cryptocurrencies are currencies of limited supply. this implies that there are a limited number of coins available that are mined or are minable. To give a small example explaining the situation, Bitcoin has set a maximum cash supply of approximately 21 million Bitcoins, which means that once this number is reached, mining activities cannot create new BTC coins.
the availability of bitcoin reached 18.587 million in December 2020, which represents 88.5% of the whole bitcoin supply that may eventually be supplied, and once 21 million bitcoins are in circulation prices will rely on the dimensions of the demand, and also the volume of transactions that bitcoin is meant to participate in , then we return to the benefit part – exactly as we imagine what can happen when the whole reserves of gold become circulating on the surface of the world and not in its interior.
In short, what gave Bitcoin value is that we as individuals have decided that it’s value, and that we have accepted it to demand it with purchasing power that raised its price, rather like gold.
In fact, gold – as a financial asset – is that the closest to comparison against Bitcoin – as a currency – in order that they called Bitcoin digital gold, both of which have benefits, and it’s general global acceptance, limited supply, and isn’t issued or produced / minted by a central government, Finally, both are mined, one by mining and researching rocks, and also the other by mass computing power and decoding mathematical algorithms.
Factors affecting The Value of Bitcoin?
In principle, and supported the decentralization of bitcoin as a currency, because it isn’t issued by a financial organization, so government monetary policies or government plans to withdraw or pump liquidity.
inflation rates and economic process measures that sometimes affect the worth of the currency don’t apply to bitcoin, neither is it considered a stock His ownership guarantees ownership of constant a part of the corporate. there’s no financial relationship between BTC currency and also the Bitcoin network and doesn’t express – financially – an element of it.
Bitcoin Prices are Mainly Stricken By The Subsequent Factors:
Bitcoin supply and market demand for it
- The cost of manufacturing bitcoin through the mining process
- The amount of rewards issued to those that mine Bitcoin
- The number of competing cryptocurrencies, and also the state of market demand for them
- Number of crypto-asset exchanges available for Bitcoin
- The number of its supporters as financial and commercial institutions or stores and its acceptance as payments
- Regulations regulating its trading and coping with it
- Its internal management, protocol updates, network status and security
The relationship between supply and demand plays a very important and influential role in determining Bitcoin prices, as is that the case with other financial assets normally, and therefore the variance within the volume of supply and demand is what pushes prices to travel up and down, and within the case of Bitcoin BTC, the protocol allows the creation of recent bitcoins – from During mining – at a relentless rate, but slowing in growth over time.
as an example, the expansion rate within the number of bitcoins mined was 6.9% in 2016 then to 4.4% in 2017 then to 4.0% in 2018, which may be considered as artificial inflation of a trading system this may create scenarios during which the demand for bitcoins increases at a faster rate than the provision increases, which can result in a rise within the price. Million dollars, then the state of demand are the most influence on prices, assuming the steadiness of supply.
Bitcoin mining also encompasses a role in influencing prices with electricity consumption being the foremost important factor far and away. the concept is to compete between miners to resolve a posh mathematical puzzle to form only one block – on the average once every ten minutes – and also the first to try and do so is rewarded with a group of newly minted bitcoins and any transaction fees that have accrued since the last block found, meaning that more producers/miners who join the competition to resolve the puzzle only have the effect of creating this problem harder to unravel – and thus dearer as their hardware runs in parallel To prove the identical block.
so as to take care of the ten-minute period, because the reward size drops from 25 BTC per block rewarded to 12.5 BTC the return on investment in mining equipment and electricity decreases which can reduce the amount of newly joined miners, at the identical time the increase in Bitcoin prices is obstructing The gap formed as a results of a decrease within the number of reward bitcoins, that is, the increase within the price of bitcoin itself is over the price of mining it satisfactorily for miners may be a consider attracting more of them, bearing in mind that this A circle that may only exist until the amount of bitcoins reaches the required supply cap
Conclusion The demand for bitcoin is increasing with its high public acceptance and recognition as an intermediate method for payments and remittances, while the provision of latest supply of it’s shrinking, with the dimensions of every block reducing every four years, and also the bitcoin protocol doesn’t allow the speed of supply of latest bitcoins to extend in response to the high demand, The imbalance of supply ahead of the rise in demand, ends up in an extra increase within the price.
So, what makes cryptocurrency volatile?
Cryptocurrencies usually aren’t backed by a central agency, such as the Bank of Canada backs the Canadian currency. Government backing can improve consumers’ faith in a currency’s value, but many of the world’s 13,000 cryptocurrencies don’t have any such backing, so have to get their value from other sources. Here are eight factors that influence their value.
Supply and demand
Cryptocurrency’s value is determined by supply and demand. When demand increases faster than supply, the price increases.
Bitcoin, for instance, has a fixed supply of 21 million Bitcoins.
Others, like Ethereum, have no supply cap. Some governing teams dictate their entire cryptocurrency’s suppl, soy they can decide to release more tokens to the public or burn them to manage the money supply.
Some cryptocurrencies have ways to “burn” – or send to an unrecoverable address on the blockchain – existing tokens to prevent the circulating supply from growing too large.
Demand can also increase as a currency gains awareness or its utility increases, especially if it becomes an investment.
Production cost
New cryptocurrency tokens are produced through a “mining” process. The miners have to use a computer to verify the next block on the blockchain.
The more competition there is to mine a certain cryptocurrency, the more difficult it is to mine because miners race to solve a complex math problem in order to verify a block.
So, the cost to mine increases as the team needs more powerful equipment – such as computers – to mine successfully.
As mining costs increase, the cryptocurrency also increases in value. Miners won’t mine if the value of the currency they’re mining isn’t enough to offset their costs.
So, as long as there’s demand to use blockchain, the price will have to increase.
Cryptocurrency exchanges
Almost any cryptocurrency exchange will list the most popular tokens, and mainstream cryptocurrencies, such as Bitcoin and Ethereum, trade on multiple exchanges.
Some smaller tokens may only be available on a few exchanges, which limits investor access.
If some wallet providers aggregate quotes to swap a set of cryptocurrencies across several exchanges, they’ll take a fee to do it, which increases the investing cost.
If a cryptocurrency is also thinly traded on a small exchange, the amount that the exchange takes may be too much for some investors.
If a cryptocurrency is listed on several exchanges, it can increase the number of investors willing to buy it, thus also increasing the demand. As demand increases, the price also goes up.
Competition
There are at least 13,000 different kinds of cryptocurrencies, with more constantly being launched.
While it’s easy for them to launch, it’s hard to make them viable since they need to build a network of users for that cryptocurrency.
If there’s a useful application for the currency on the blockchain, then it can quickly build a network, especially if it improves a competitor’s limitation.
If a new competitor gains momentum, it reduces an existing competitor’s value, driving down its value while increasing the new currency’s value.
Internal governance
Cryptocurrency networks rarely abide by a static set of rules. Their developers base them on the community they serve. Some allow their holders to have a say in how a token is mined or used.
There needs to be consensus among stakeholders to make any changes to a token’s governance.
Investors usually like stable governance, which also provides more stable pricing. On the other hand, the slow process to update software to improve protocols can limit crypto’s values.
If an update would unlock value for cryptocurrency holders, but takes a long time to execute, it hurts the current stakeholders.
Some cryptocurrencies have ways to “burn” – or send it to an unrecoverable address on the blockchain – existing tokens to prevent the circulating supply from growing too large.
Regulations
Regulations govern how cryptocurrency trades, but governments still don’t have the best practices for regulating cryptocurrency yet, which makes it a particularly risky and volatile investment.
Products such as exchange-traded funds (ETFs) or future contracts could provide more access for investors, so increase its value.
Regulation can also allow investors to bet against the price of cryptocurrencies with future contracts or options, which can reduce the volatility of crypto pricing.
Regulations can also negatively impact cryptocurrency demand. If a governing body changes the rules so a cryptocurrency investment falls out of favour or use, it can also cause the cryptocurrency’s price to drop.
Node Count
Node counts show how many active wallets exist in the same network so you can find out the community’s strength. A high count means a stronger community and increases the chances for that currency to weather a potential crisis.
You can check the currency’s home page or Google search to learn the count. If you compare it and its total market capitalization with a popular currency, you can see how node count influences price.
Social media
Social media hype, or influential people on it, can raise or lower a cryptocurrency’s price. While cryptocurrency exchanges can provide information on blockchain or a currency, it’s also important to check details that may come from other sources as they don’t even need to be correct to impact the currency’s volatility.
