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Crucial factors influencing bitcoin’s value

When Bitcoin’s demand increases, its price also increases and vice versa. However, the following factors also impact Bitcoin’s value.

physical bitcoin on table
Image: Unsplash

In 2009, Satoshi Nakamoto introduced Bitcoin. Back then, many people knew little or nothing about this cryptocurrency. But today, Bitcoin is a significant crypto asset that many investors want to add to their portfolios.

Initially, Satoshi wanted Bitcoin to be a virtual currency that people would use without a central regulatory authority like a central bank or government.

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However, this cryptocurrency’s high volatility turned it into a tradable commodity. Some people even buy Bitcoins and hold them in their crypto wallets, waiting for their value to increase and eventually sell them for profits. But what influences this cryptocurrency’s value?

The price of cryptocurrencies like Bitcoin can increase or drop dramatically. Like most tradable commodities, demand and supply influence Bitcoin’s value.

When Bitcoin’s demand increases, its price also increases and vice versa. However, the following factors also impact Bitcoin’s value.

Competition

Developers create and launch new digital currencies now and then. And new virtual currencies affect Bitcoin price upon their introduction in the market.

Some cryptocurrencies like Ethereum have been in the market for some time. 

Also, the world has soccer team coins, meme coins, and celebrity coins. Cryptocurrency projects also present investment opportunities. Such competitors can influence Bitcoin’s value by taking its market share.

Government Regulations

bitcoin and $100 dollar bill
Image: Unsplash

Bitcoin is undoubtedly decentralized, meaning no central authority regulates or controls it. However, some governments don’t like the idea of decentralized money. Therefore, they constantly look for ways to handle this virtual currency.

For instance, some governments have set taxes for people that trade or invest in Bitcoin. Government regulations like taxes or rules that govern where and how people use this cryptocurrency can influence its value.

Some countries have even banned Bitcoin and other cryptocurrencies. On the other hand, El Salvador has embraced it as a legal tender. Therefore, how governments respond to this virtual currency will undoubtedly influence its value.

Node Count

Node count refers to the active wallets in the Bitcoin’s network. This information is accessible to anybody who needs it. Several websites and blogs that publish information about cryptocurrencies have such information. But why is node count essential?

Bitcoin’s node count shows the strength of its network. When the cryptocurrency has a high node count, its community is solid.

Consequently, this boosts the chances that this cryptocurrency will overcome potential crises. Additionally, more nodes indicate Bitcoin’s network decentralization and strength.

Production Cost

best bitcoin mining hardware

Miners use specialized software and hardware to produce new coins on the blockchain.

Bitcoin mining involves verifying people’s and organizations’ transactions with this cryptocurrency. The network rewards miners with new coins or tokens that enter circulation.

But Bitcoin mining requires a lot of money as the capital for setting up a mining rig. Also, Bitcoin mining rigs require a lot of energy. Therefore, miners incur significant expenses in capital and electricity bills.

The Bitcoin network reduces the reward for the miners by half every four years. Therefore, miners sell the new coins at a price that will cater to their investment capital and recurrence expenditure in electricity bills. And this influences the value of Bitcoin.

In addition to these factors, crypto exchanges also influence Bitcoin prices. If a crypto exchange has many users willing to sell Bitcoins, the price might decrease and vice versa.

Also, social media can influence Bitcoin prices. For instance, when an influential figure talks positively about Bitcoin, its demand can increase as more people rush to buy it.

Similarly, fewer people will show interest in Bitcoin if an influential figure says terrible things about it.

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Chris has been blogging since the early days of the internet. He primarily focuses on topics related to tech, business, marketing, and pretty much anything else that revolves around tech. When he's not writing, you can find him noodling around on a guitar or cooking up a mean storm for friends and family.

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