What is Bitcoin, and What Determines the Value of One Bitcoin?
By Space Coast Daily // December 25, 2021
Bitcoin, a cryptocurrency, has a skyrocketing market price but is quite volatile. Novices keep wondering regarding factors that make bitcoin so volatile. Bitcoin popular as BTCUSD, the developer of this coin has never come in front of the public and released his real identity. The speculations are that Satoshi Nakamoto hoards a million BTCs.
Cryptocurrencies are a completely different aspect than fiat currencies. To know more about cryptocurrency trading, check the bitcoin circuit. Traditional banks do not govern these virtual coins, which means the government cannot control the supply and price of these coins. Let’s find out about the factors that affect the market value of one bitcoin.
Let’s understand the factors responsible for bitcoin’s volatile nature!
Factors like inflation rates and monetary guidelines affect the value of a fiat currency in the international market, but these factors don’t seem to impact bitcoin. However, below listed are some factors responsible for impacting the store value of bitcoin.
Whether it is bitcoin or a gold standard investment asset, supply is an essential factor determining its market value. Usually, the investment assets with an exceeding extent of scarcity tend to have a skyrocketing market value, but that is not always true. Sometimes, it leads to a complete market crash due to less liquidity.
The supply of the largest cryptocurrency, bitcoin, has been diminishing since its emergence.
Technologies like proof of work permit the creation of new virtual coins at an actual production rate. For example, in ten minutes, a bitcoin miner can only create 6.25 BTCs and not more than it. This rate drops by half every four years in the bitcoin network to make it even scarcer.
The supply rate in the bitcoin network slumped by more than 10% in the past five years. Bitcoin halving has always been responsible for sudden price bumps in bitcoin’s market value after every four years.
Bitcoin is very popular amongst millennials, retail investors and well-known organizations. MNCs like Tesla motors are the owners of a large number of BTCs. In short, bitcoin has got loyal financial support, and bitcoin Maximalism is on a roll these days.
Suppose an influencer bought a handsome amount of BTCs and tweeted about his bitcoin purchase, then it will also influence their followers to buy such currencies. Maximalists play an essential role in increasing demand for bitcoin.
You might think who bitcoin maximalists are; these individuals think bitcoin is only a decentralized project with real potential.
El Salvador and Microstrategy are now bitcoin maximalists as they hold an outstanding amount of BTCs. If any of these criticize bitcoin on social media handles and even publically, it will lead to a massive slump in bitcoin’s market value.
In a nutshell, the lessened supply of this virtual currency has formed a lethal combination with higher demand and is fueling bitcoin’s market value.
Many experts consider bitcoin a commodity, and Canada also ranks bitcoin as a commodity and cryptocurrency exchange as MSB. Similar to commodities, the expenses of generating products demonstrate the market value of BTC. Usually, the expense of cryptocurrency mining is an additional value of buying mining machines and the cost of electricity or any other energy source.
In addition, mining is just like a rally race; if a miner crosses the finish line by discovering a complete solution to a cryptographic math puzzle before fellow miners, that individual or mining pool gets freshly mined BTCs. Further, these miners can release freshly minted BTCs in circulation by trading them with fiat currencies.
With the success of BTC, many cryptocurrencies came as the more developed and advanced version of BTC. Any other digital coin is famous as an altcoin, and the industry is full of potential. A few popular altcoins with a handsome market cap are ether, XRP and Cardano. Both Cardano and ethereum are not a cryptocurrency and are Launchpad.
But tokens of these models, ADA and ether respectively, are prevalent cryptocurrencies with huge market caps. Ether is trading at $4000, and ADA is trading at $1.39. Altcoins seems to impact the value of BTC as in 2020, bitcoin dominated 80% of the cryptocurrency market, and by the end of this year, the domination is just 45%.
These are some factors that determine the market value of BTC.