Factors Influencing The Price of Bitcoin

How much do you think one Bitcoin is worth today? That is a question of much discussion among Bitcoin traders and other enthusiasts across the globe. Its extremely high volatility implies that Bitcoin's price can skyrocket within a few hours. This is a quality that professional traders really appreciate.

Since its inception, Bitcoin has had its price increase radically. Indeed, its first exchange rate was 1 dollar for 1,309.03 BTC - or 0.00077 USD for 1 BTC. Within 8 years, Bitcoin would cross the $10,000 barrier, which is an absurd rate of return. By 2018, its price increased to over $20,000 and as of the time of writing, one Bitcoin is valued at about $35,000.

What are the factors that determine the price of Bitcoin?

There are several factors that influence the market price of Bitcoin. Some of these are explained below:

Supply and Demand

The law of demand says that as the price of a commodity increases, the price drops. On the other hand, the law of supply affirms that the higher the price, the more eager a supplier will be to provide an economic good. Together, these laws determine the market value of all commodities - including Bitcoin.

It is important to consider the rate at which a new Bitcoin is created. It is not a strange fact that new Bitcoins are created whenever miners process transactions. These Bitcoins are then introduced to the market. This process is designed to slow with time due to Bitcoin Halving. In this case, when the creation of Bitcoin cannot meet its demand, the price will increase.

How much it takes to produce Bitcoin

Despite the nature of Bitcoin as a digital asset, it must, nonetheless, be produced. The cost of producing or generating new Bitcoins is directly related to the whole mining process and its electrical consumption.

Bitcoin mining, to simply put, involves a situation where miners are tasked to solve complex mathematical problems and are rewarded with new Bitcoins - as a form of incentive. This process, oftentimes, consumes so much electricity to provide solutions to these mathematical problems. The cost involved in producing these Bitcoins determines their value.

Take for example, a single block of the transaction will take 10 minutes to verify - on average. When more miners join, the competition increases, and as a result, solving problems becomes more difficult. This causes the cost of providing solutions to these problems to increase. The time and effort miners invest in Bitcoin production will influence its price.

Media attention

In the present world we all live in, the power of the media cannot be underestimated. Usually, when the media gives a product or service a positive review, it attracts so much attention. However, a negative review can give a commodity unwanted attention, leading to price drops.

However, Bitcoin is a unique commodity. Itsantifragility has ensured that despite all the government regulations and negative media coverage, its popularity and influence keep growing and spreading to the far reaches of the globe. This always has the potential of affecting the value of Bitcoin.Trading in the UK is popular and there are several enthusiasts, within the country, that are willing to find the perfect trading platform. This ensures that Bitcoin keeps increasing in price.

Trading regulations

The decentralized nature of Bitcoin has made the governments of several nations see it as a major threat. Many regulations have been imposed on trading Bitcoin. These include taxations, complete ban, amongst many others.

These regulations vary based on how the government sees them. Oftentimes, these rules affect high-volume traders and investors. When their doubts are constantly fed with several regulatory instances, Bitcoin prices might decrease owing to their fear.

Bottom Line

Bitcoin price has varied over the years, due to its high volatility. Many factors control Bitcoin price and it is safe to affirm that its high return on investment makes it the future currency.

This article does not necessarily reflect the opinions of the editors or the management of EconoTimes