22 January 2021
Bitcoin is the first and the most popular cryptocurrency that as launched in the year 2009 by Satoshi Nakamoto. The transactions are backed by the blockchain technology which is a decentralized open-source platform. While unlike traditional currencies, bitcoin is not regulated by a central authority or the government, hence the economic and inflation growth or the monetary policies of the cryptocurrency is not determined, unlike the traditional currency. Rather the factors influencing bitcoin is based on its demand and supply and one of the many reasons,
In this blog, we are going to discuss the factors that determine the price of bitcoin:
The supply and demand for Bitcoin is one of the factors that determine its value leading to the protocol of the bitcoin that enables new bitcoin to be generated at a certain rate and there are a finite number of 21 million bitcoin that can be mined. The new bitcoins are generated by the miners with the process of mining wherein the miners are rewarded in a consensus network. The circulation of bitcoin is also impacted by the bitcoin halving of its block rewards, hence the last bitcoin is expected to be mined till the year 2140. Cryptocurrencies are traded on the crypto exchange such as Binance, Coinbase and many such more. And since, bitcoin is traded on various exchanges, its value is based at an average price at the time. Even though the price of the bitcoin is volatile, it is stated to be highly liquid.
Due to many reasons that the cryptocurrency offer and its blockchain technology, it is very popular and dominates the market capitalization. Also, new ICO that are emerging is seeking the attention of the investors.
Also Read, Evolutionary Regulations of Cryptocurrency
Apart from the factors that affect the value of Bitcoin, the tangible point is the electricity that the process of producing bitcoin consumes. The mining process requires solving of the complex mathematical cryptographic algorithms while the mining process takes 10 minutes for the block to be added into the blockchain.
Since bitcoin is decentralized it has caused debate amongst the community about the regulation of the digital asset. Such as the SEC - Securities and Exchange Commission states cryptocurrency to be securities while the US CFTC - Commodity Futures Trading Commission states cryptocurrency to be a commodity. However, since there is no certain central authority governed on the bitcoin, it relies on miners and the developers to keep the platform secure.
The process can be lengthy when it comes to any change and lead to the issue of scalability faced by the cryptocurrency as it depends on the software and the block’s size effects by the demand of bitcoin.
Also, the acceptance of Bitcoin or any cryptocurrency is variant in every country.
To sum it up, the price of the bitcoin depends on various factors with the given environment of the market setting variant dynamics to its value. When the demand increases - the price of bitcoin shoots up and when the demand is low - the price of bitcoin is down.