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What determines bitcoin value

What determines bitcoin value?

  • 11 May 2022
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Bitcoin is an important digital currency or cryptocurrency. Unlike the dollar, euro, pound, yen, peso, and other government-backed currencies, cryptocurrencies are not officially endorsed by any central bank or government. The currency is traditionally traded in an open marketplace similar to the stock exchange, where buyers and sellers can exchange their local money for bitcoin or vice versa. While some cryptocurrency exchanges host trading platforms with slight price fluctuations, Bitcoin’s overall market price is the last price at which a transaction takes place. However, bitcoin value varies widely and depends on the investor – some say that bitcoin’s intrinsic value is much higher than the market value; others claim that bitcoin may not be worthless.

Learn more about how bitcoin is priced, how to interpret its value, and how to participate in the latest bitcoin promotion.

Who sets the price of Bitcoin?

Bitcoin’s value is determined by the same market forces that affect the value of other goods or services. If more people want to buy than sell, prices are likely to go up. When there are more sellers, the price tends to go down. This is similar to the stock market, real estate, and most other open marketplaces.

Bitcoin has a fixed maximum supply of 21 million coins, with nearly 19 million coins created. This concept is similar to outstanding shares on the stock exchange.

When an open buy order and a sell order meet at a common price, the order is filled. This final trading price is the current bitcoin value. You can find the latest bitcoin price on a site like CoinMarketCap or a public blockchain explorer, a site where anyone can review every bitcoin transaction that has ever taken place.

You may notice that some exchanges list different bitcoin prices. This is because some exchanges operate independently of the open market and only serve their members, so prices may differ slightly from the overall market. Sometimes this is beneficial as you may be able to buy bitcoin without paying network fees, which may be higher than the exchange’s fees. Additionally, on some exchanges, there is a “spread” in the price of bitcoin — the difference between the buy and sell prices — that can leave it slightly above or below the market price.

Economy 101

The answer to this question is fairly simple and lies in the basic economics: scarcity, utility, supply, and demand.

By definition, if something is both rare (scarce) and useful (usefulness), it must have value and command a certain price, all other things being equal.

Take gold for example. Why does gold cost so much? Simply put, it’s relatively expensive because it’s rare, hard to find, and has limited availability (scarcity). Gold also has some uses from which consumers derive satisfaction (benefits).

The combination of these two elements creates value that drives the price based on market supply and demand.


Why Bitcoin cloud mining?

An unknown individual or group called Satoshi Nakamoto introduced the Bitcoin network in 2009. In 2021, there will be more than 10,000 different projects in cryptocurrencies. So each of them has its role in building the future of money.

The market value of cryptocurrencies reached $ 1 trillion for the first time in January 2021. It passed $ 2.5 trillion less than three months later. So it shows that this market is one of the growing markets favoring its investors.

Bitcoin Cloud Mining is the process by which you participate in a mining pool to a cloud miner website and purchase a certain amount of hash power. In this pool, the profit will distribute equally among all participants who have participated in the mining pool. It will happen based on hash power. Also, the cloud mining platform allows you to mine your BTC without installing any hardware and at no extra cost. So Minerland, the best crypto cloud mining service to earn Bitcoin, helps you invest in Bitcoin easily and with low risk. For more information about us, you can follow Minerland’s Instagram account.


What does all this have to do with Bitcoin?

Like gold, bitcoin is scarce: its supply is limited. There are currently just over 16.2 million bitcoins in circulation and the maximum that will ever exist is capped at 21 million. This cap is well known and makes its scarcity transparent.

However, to have value, Bitcoin must also be useful. Bitcoin creates utility in several ways.

Like gold, bitcoin is perfectly fungible (one bitcoin is similar to another), divisible (you can pay someone a small fraction of bitcoin if you like), and easily verifiable (via the blockchain).

Bitcoin is not only scarce, but it also has a utility

Bitcoin also has other desirable properties. Fast, limitless, and decentralized, it has the potential to change the world of finance for the better. It currently has a value not only as a payment system but also as an asset class (a store of wealth). It’s also useful because it’s based on open protocols, which means anyone can innovate and improve the system based on it.

Bitcoin also has undeniable utility when compared to other, newer cryptocurrencies. There is simply no other cryptocurrency that is as widely used and integrated at this point. Through network effects, we are beginning to see exponential growth creating value as more people start using Bitcoin and more merchants accept it as a form of payment.

Today, thousands of merchants around the world already accept bitcoin as payment, proving its growing usefulness.

Take phones for example. When the first phone came out, it was of very little value because hardly anyone was using it. However, as more and more people started using it, the benefits grew exponentially.

The same goes for Bitcoin: the more people start using and understanding it, the more useful it becomes for everyone else.

How the price of bitcoin is determined

Bitcoin’s price is not the same as its value. The price is determined by the market in which it is traded: by supply and demand. That’s how the price of your used car, a bag of apples at the grocery store, an ounce of gold, and just about everything else is priced.

Traders with bank accounts in our supported countries can trade bitcoin on the Luno Exchange, which sets the specific price at a given time for a given market. Luno doesn’t set the price: the traders (who buy and sell on Luno) do.

Simply put, it is the constant interaction between buyers and sellers trading with each other that determines the specific price of bitcoin (and everything else).

However, when determining the price, one must also consider how much buyers are currently willing to pay for the future value of a particular item. In other words, if the market thinks the price of something — like real estate, a particular stock, or Bitcoin — will go up in the future, they’re likely to pay more for it now.

Some of the uses in which Bitcoin is currently useful have been mentioned above, but as Bitcoin is an evolving and improving technology, many are optimistic that there will be many other use cases. Some maybe we haven’t even thought of yet.

Bitcoin’s value (price) vs valuation

When buying or selling financial products, it is important to distinguish between price, value, and valuation. Value is the current price or what someone is willing to pay for something at the moment. Valuation is a complicated analysis of an investment.

The value of bitcoin is the current market price; its intrinsic or actual value is difficult to determine.

Valuation

In the stock market, analysts review a company’s financial performance and stock market prospects – the results are quantified and then benchmarked against widely accepted metrics that determine the true value of the stock. These metrics can then be compared to the performance of other stocks to provide relative value.

Bitcoin can be compared to other cryptocurrencies for relative value. However, it is difficult to compare the intrinsic value of stocks or bonds to bitcoin because they are different instruments.

It is important to note that investment valuation is different from the value of an investment. Intrinsic (absolute or actual) value is the term commonly used to refer to the value found through analysis and evaluation.

Value

The value is relative to the investor. If bitcoin meets your investment goals and risk tolerance and gives you the returns you want at a price you are willing to pay, that price is worth it. This is the market price you see when you look up the bitcoin price.

Factors that could affect the price of bitcoin

Bitcoin is a unique asset that is relatively new, so the future is widely considered uncertain. Although it’s about a decade old, it’s still a Wild West frontier in many ways, with future regulations uncertain.

Probably the biggest single factor that could affect the price of bitcoin is government action. Regulators in the US could introduce new laws or regulations that severely restrict or even make Bitcoin illegal.

When it comes to cryptocurrency regulation, the Federal Trade Commission, the Commodity Futures Trading Association, and the Securities and Exchange Commission are the top government regulators to watch out for. Since cryptocurrency is not yet regulated, it does not have the same legal or privacy protections as accounts and securities based on the US dollar.

External influences can also push bitcoin prices higher. For example, Tesla CEO Elon Musk’s tweets have had an impact on crypto market prices. Catherine Wood, CEO of Ark Invest, is another major Bitcoin advocate who could help push the market higher. Additionally, early investors who have built significant Bitcoin holdings, sometimes referred to as Bitcoin whales, can swing the markets by making a large transaction.

It is important to understand that investing in Bitcoin is highly volatile and risky. While you could buy Bitcoin and make a great return, there are also great risks of loss. For most people, it’s best to limit bitcoin investing to funds you can afford to lose.

Why does the price change so often?

This is called volatility and it’s not just the bitcoin exchange rate that seems to change from day to today. The price of many things, such as stocks, currencies, oil, and many other products, can be quite volatile. It moves up and down a lot against a base currency (like the US dollar).

The overall bitcoin market is still relatively small compared to other industries. It doesn’t take large amounts of money to move the market price up or down. So the price of a bitcoin is still somewhat volatile.

However, Bitcoin’s volatility has been steadily decreasing and has become much more stable lately.

How has the price of bitcoin changed over time?

We have created a bitcoin price calculator page where you can always see what the price of bitcoin at Luno was in the past.

So there you have it. In short, if something is both useful and scarce, it will command value and price. Bitcoin is both useful and scarce, so it has value and a price determined by supply and demand. And remember that bitcoin value and bitcoin price are not synonymous.

Frequently Asked Questions (FAQs)

How do you track Bitcoin’s value?

Bitcoin’s value depends on your financial circumstances and investment goals. The price of bitcoin is publicly available at all times through most cryptocurrency exchanges, along with cryptocurrency news and market websites. CoinMarketCap is one of the larger and better-known cryptocurrency valuation and data sites. You can trust it as a source for bitcoin price data. If you have an account with an exchange or brokers like Coinbase, Robinhood, Gemini, Binance, eToro, or FTX, you can view the current price in your trading app or account online.

What is the highest value of bitcoin?

In October 2021, the bitcoin price reached $66,878 for a single bitcoin. The price surge reflected the first time a bitcoin-linked ETF became available for trading on an exchange.

6 responses to “What determines bitcoin value?”

  1. Herve Fodouop says:

    Good informations

  2. Fidele Tuyambaze says:

    Nice information

  3. Joel Nando Bertorelli says:

    A very good article and not to off the between points that make up the rest of the story.

  4. Payam says:

    Crypto to the moon

  5. Yanga Jili says:

    Good to know though on determining the bitcoin value

  6. Angela says:

    Interesting info for the fans of Bitcoin cryptocurrency

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