One of the early introduced cryptocurrencies, Bitcoin, is not issued by any government or legal body and has no control over fiat currencies like the Dollar, Pound, Euro, and Yen. So, let us know how the value of Bitcoin is determined. Bitcoin transactions are facilitated by decentralized ledger blockchain technology.
BTC is a decentralized digital coin issued by an unknown group in 2009. Unlike traditional currencies, it has no central control or is backed by any government. Since it involves no intermediaries, it differs entirely from other digital coins or stocks.
Bitcoin is a type of cryptocurrency that you can store, exchange and use to make transactions. Many believe market demand and supply affect the price of bitcoin. Here in this article, what mainly affects the price of bitcoin and how the value of Bitcoin is determined.
What gives Bitcoin value?
As we all know, bitcoin is not regulated by any central authority or government. Many factors influence its prices, such as monetary policy, inflation, and economic growth rates. Here are some essential factors mentioned that severely impact bitcoin prices.
- Supply and demand
- Production and mining cost of the bitcoin
- Competing cryptocurrencies around
- Government regulations
- News and media publishing
Supply and demand
Supply and demand is the prime factor determining bitcoin prices in the digital world. An asset that is less in availability or scarce is likely to have higher prices than the widely available assets. Bitcoin supply is usually limited as only some specific number of coins is created annually.
Bitcoin has drawn the attention of many new investors and traders. This considerable attention has been fueled by increased media coverage and a rise in the supply-demand chain. As a result, bitcoin has also become popular in countries where inflation is high such as Venezuela.
Inflation and Deflation
Inflation and deflation majorly affect bitcoin prices. It occurs when asset supply is abundant and cost increases dramatically, causing a lower value. Bitcoin is considered deflationary due to its limited supply. The government’s ability to produce a limited number of assets saves currency from hyperinflation.
Production cost affecting the price of the bitcoin
Like other assets, the production cost of bitcoin is highly important in determining its prices. According to a report, the pricing of any asset is highly influenced by its marginal cost of production. Bitcoin price is closely related to the direct cost of bitcoin manufacturing and mining.
Regulations also affect bitcoin
Some regulations significantly affect the crypto market. Digital currencies are themselves regulated and gained a reputation all over unregulated markets. The lack of rules in bitcoin has both benefits and drawbacks.
The absence of regulations signifies that coins can be freely used without third-party interruption. The lack of regulations in cryptocurrency only affects its prices for a limited time, and its impact on the long term is unknown.
Bitcoin’s Price and the Media
Media and press work for bitcoin prices to engage audiences and investors. Any new changes and or matters affect the bitcoin prices. E.g., good news often brings positive results for bitcoin, while negative news sends it down.
Conclusion
Bitcoin is a very volatile cryptocurrency. Since the number of bitcoins is finite, new bitcoins are created at a decreasing rate. The demand must meet the supply to keep stability in the market. We hope that you understand how bitcoin value is determined.
The Bitcoin market is huge compared to other industries. No one, in particular, sets the price of bitcoin as determined like any other market. If you want to choose an exchange to trade bitcoin, you must do well research before making any decision and should know the Bitcoin value today, AUD.
