Essential factors influencing bitcoin price
Several factors include Bitcoin’s value. However, this digital currency is in its developmental stages.
Many people want to invest in Bitcoin after realizing its current value. However, this virtual currency has exhibited extreme volatility over the years. While its value has increased since its introduction, Bitcoin remains a volatile digital asset. But what influences the price of this virtual currency? Here are some of the key influencers for Bitcoin price.
Supply and Demand
You’ve probably heard about supply and demand if you’ve been into an elementary economics class. The supply and demand law applies to almost everything that has some value. According to this law, the need for something decreases when the price increases. When the price of a commodity increase, sellers tend to supply or release more of it into the market. The actions of suppliers and buyers determine a commodity’s market price and volume. And this concept influences Bitcoin price significantly.
According to Bitcoin’s initial protocol, this virtual currency has a fixed production rate. Miners generate new tokens by processing transaction blocks, and Bitcoin halving gives this process a low pace. Consequently, Bitcoin has a faster-rising demand than supply. And this keeps the price of this virtual currency increasing.
What’s more, Satoshi Nakamoto created Bitcoin with a limit of 21 million tokens. Upon reaching this capitalization, miners won’t earn new Bitcoins after verifying transactions. Once this happens, the rewards for verifying transactions might not affect the value of this digital currency. Instead, factors like daily life usability and practicality will determine Bitcoin’s value.
Bitcoin exists as a digital asset. However, it’s a product requiring production by miners. And the mining process can have very high electrical consumption, increasing Bitcoin’s production cost.
Essentially, the mining process entails solving complex math or cryptographic problems. After minting new Bitcoins, miners get a reward. But miners use powerful computers with high electric consumption to solve math problems. And this can increase Bitcoin’s production cost and value.
Verifying a single block can take around 10 minutes. With more miners joining the process, competition keeps increasing. And increasing competition makes solving a single math problem difficult. When solving a single problem becomes difficult, the mining process costs more because a miner can spend more than 10 minutes. And this will influence the value of this digital currency.
While Bitcoin is currently the most famous and well-known cryptocurrency, the world has thousands of digital currencies. These include Litecoin, Dogecoin, and Ethereum. All these are struggling to capture the attention of anybody using the traditional financial system.
Consequently, this competition creates a crowded space where investors want to diversify their portfolios. But, this competition can ground Bitcoin values by decreasing its user base. If Bitcoin were the only digital currency available today, its price would be different.
Today, most people use crypto trading software to purchase this digital currency. And this makes it easier for people to get Bitcoin without engaging in the mining process. And each crypto exchange or trading platform faces different sales regulations. Also, some governments are yet to adopt any position on Bitcoin because it’s a new asset. Others are changing rules like taxation.
Being decentralized means Bitcoin doesn’t have a tie with any central government or its agencies. Consequently, some crypto regulations can affect Bitcoin’s value due to their implications on investors. For instance, the fear of an imminent government’s decision or statement can lower Bitcoin’s price.
Positive media coverage can increase Bitcoin’s value, while negative attention can have a negative impact. The media enhances people’s understanding of this cryptocurrency and its functionality. Increasing enlightenment can draw more people into purchasing or investing in this virtual currency, boosting its value.
Several factors include Bitcoin’s value. However, this digital currency is in its developmental stages. That means its price and factors influencing it could change over time. Therefore, research the market and the crypto world before investing in Bitcoin.