Bitcoin is a digital form of currency that allows people to make exchanges without approaching third-party. Today, it becomes a viable option for many people. One can finish transactions instantly. Location doesn’t matters for the bitcoin transaction as it runs through the nodes of a computer. Bitcoin becomes a fast global cryptocurrency as you can deal with any person from one corner to another. Unlike traditional currencies, bitcoin is not issued by a government. Therefore common factors like monetary policy, inflation rates and economic growth measurements do not apply to bitcoin. The bitcoin price is determined by various factors and some of them are given below.
Supply and demand:The supply of bitcoin and the market’s demand for it determines its price. The supply of bitcoin is impacted in two ways. First, the bitcoin protocols allow new bitcoins to be created at a fixed rate. Second, the supply may also be impacted by the number of bitcoins the system allows to exist. The number of bitcoins allowed to exist is 21 million, once the number is reached mining activities will no longer create new bitcoins.
Competition:One of the most well-known cryptocurrency is bitcoin. There are also some other cryptocurrencies that are available in the market. While bitcoin is still the dominant option, there are still some competitors like Ethereum, Tether, Binance coin, and few other cryptocurrencies. Due to its competitors, the price of the bitcoin goes down as is the good news for the investors. Luckily for bitcoin. Its high visibility gives it an edge over its competitors.
Cost of production:Bitcoin mining is a complex procedure as one has to solve a complicated math problem. While bitcoins are virtual, electricity consumption incurs a real cost of production. The first one to solve this complicated problem is rewarded with the free bitcoin. The cost of production also plays a vital role in determining the price.
Regulations and legal matters:This aspect can impact prices in two ways. First, it provides bitcoin access to investors who cannot afford to purchase an actual bitcoin thus increasing demand. Second, it can reduce price volatility by allowing institutional investors who believe bitcoin futures are overvalued or undervalued.
The above-mentioned are a few that determines the bitcoin price. As bitcoin nears its maximum limit, demand for it increases. The increased demand and limited supply push the price per bitcoin upward.