What Is The Price Of A Bitcoin? How Does It Vary?

A cryptocurrency is a sort of digital asset emanated from a network that is apportioned over a huge number of computers. Its decentralized structure enables them to remain outside the jurisdiction of governments and higher authorities.

 Ever since the pandemic hit, the countries started printing money vigorously. The United States of America, alone, printed trillions of dollars i.e equivalent to India’s GDP leading to the depletion of the value of currencies across the globe.

 In simpler terms, the commodities that are accessible at cheaper rates in the present will shoot up in the future because the value of our fiat currency is depreciating over time and inflation is possible.

In this article, we will discuss what determines the price of bitcoin and how it varies.

What Determines Bitcoin’s Price?

Bitcoin’s price is not affected by economic growth, inflation rates or the monetary policy. All of the currencies that are traditionally existing are all looked after by Government bodies or a central bank but that is not that case with bitcoins. Bitcoins or cryptocurrency is not handled by any sort of central authorities or Government of any particular country.

It’s often presumed that the value of bitcoins or cryptocurrency may get influenced by the typical and traditional factors. However, factors that affect traditional currencies do not have an impact on cryptocurrency. Let’s discuss the factors that actually influence bitcoin’s price.

The first and foremost thing has to be how much bitcoin is being supplied. In addition to that the market’s demand for bitcoins also plays a major role. Bitcoins are produced through the process of bitcoin mining. The cost of the production in the aforementioned procedure also impacts it’s cost.

Bitcoin miners carry out the process of mining the bitcoins. There are roughly 300,000 transactions taking place almost every single day and it’s crazy how miners sitting across the globe verify all of these transactions. There has to be a solid incentive to compensate for the amount of work that they do. Whenever a new block of transaction is added to the blockchain, miners are awarded with a bitcoin.

These rewards that are issued to the miners as and when they mine a particular bitcoin and verify the pending transactions also have an influence in determining what the cost of bitcoin will turn out to be. You can also check Bitcoin Prime if you are planning to start trading.

Although bitcoin is the most popular amongst all cryptocurrencies and is mostly the highly demanded one too. However, with the growth of the cryptocurrency in the financial world and considering the growing interest of potential investors in cryptocurrency and altcoins, other altcoins like ethereum are also catching up.

This popular demand and smart investing techniques involves a ratio strategy where you invest your portfolio diversification in different altcoins and not just in one. So the share that would earlier have been invested in bitcoins is getting divided gradually. This is also impacting the cost of bitcoins over time.

There are different ways in which potential investors and people who invest a part of their portfolio trade cryptocurrencies. Some put their money into it to make sure that their cash reserves are saved and their value does not deplete over time. They are long term players. Otherwise there are a few traders who use bitcoins as a value exchange in their business.

In such cases, bitcoin’s value also gets influenced by the exchanges through which the trading is happening. Regulations that govern it’s sale also matter a lot. Certain times, there are conservative banks and governments who put a full stop on trade of bitcoins and implement regulations. That has a great impact on the cost of bitcoin too. In addition to that, it’s internal governance is also something that plays a role in determining the cost of bitcoin.

Let’s discuss a few of these important factors in detail.

Supply And Demand

In a few countries, the central bank  has the authority to decide certain rules and regulations regarding the currency’s exchange rate. These sorts of countries usually do not have any fixed foreign exchange rates. This enables them to have a partial control over the circulation of their currency. This can be done by changing the discount rate, by adjusting reserve requirements, or allowing engagement through open-market operations.

There are two possible ways in which the supply of bitcoin can be influenced. To start with, bitcoins can be created at a fixed rate. This is because of certain protocols being implemented that is enabling it to take place.

Secondly, bitcoin miners are supposed to verify each transaction that is coming through the system. There are millions of transactions happening all over the world at all times and this is fairly a very tough task. So they are rewarded with bitcoins every time they are successful in mining one.

This means that a new bitcoin is born and the rate at which new bitcoins are being introduced in the system is set in a way that it will slow in the long run. The growth is constantly slowing down with years passing by. Contrarily, the demand is increasing. At the same time, the supply is decreasing.

This is one of the most prominent reasons why the price of bitcoin is constantly driving up.

Competition

No doubt to the fact that bitcoin is the most popular cryptocurrency in today’s time but considering the growing interest of millions of potential investors who are ready to place a bet on crypto as a part of their portfolio diversification, other altcoin’s demand is growing over time.

Ethereum, Tether, Binance coin, Cardano and Polkadot are strong competitors of bitcoin in the crypto market. Bitcoin is the coin that is mostly known and visible to most of the population. This is the reason why bitcoin has an edge over other altcoins for a good period of time if not for very long.

Conclusion

This article deeply discussed most of the prominent factors that a play an important role in impacting the cost of bitcoin.