How is Bitcoin's Price Formed?
Bitcoin’s price is a hotly discussed topic in the cryptocurrency world, and has been pretty much forever. Many people are interested in how the Bitcoin price is formed, and what factors influence it. Let’s find out!
From a tenth of a penny to $68 000, it was quite a journey, wasn’t it? And even at $24 000 apiece, it’s still quite an achievement. But how in the world does Bitcoin’s price work?
Read more what can you buy with Bitcoin
The basics of demand and supply
Understanding how supply and demand works is essential to understanding the value of Bitcoin.
Supply and demand is a fundamental economic concept that explains how prices are formed in a market. It's all about how much of a product is available (supply) and how much people are willing to pay for it (demand).
When the amount of people wanting to buy an item increases and the amount of the item available for sale decreases, its price will increase.
On the other hand, when there is more of the item available for sale than the amount of people wanting to buy it, its price will go down.
In the case of Bitcoin, the market capitalization or the total value of all the Bitcoin in circulation, is used as an indicator of supply and demand. As more people trade and invest in Bitcoin, the market capitalization rises, which means that demand for Bitcoin is increasing.
At the same time, with limited Bitcoin supply, it's not easy to find new coins, so this keeps supply low, which further increases its value.
The cryptocurrency trading and blockchain technology also play an important role in Bitcoin's price formation. With trading, people can buy and sell Bitcoin on online exchanges and other platforms, driving up its value. Meanwhile, blockchain technology makes it possible to store and transfer Bitcoin securely, making it easier for people to use and trust it.
All of these factors contribute to the supply and demand of Bitcoin, influencing its price in the market.
— Elon Musk (@elonmusk) October 21, 2021
Traders, whales, panic
Another factor that shapes Bitcoin's price is cryptocurrency trading.
As with any asset, the price of Bitcoin is determined by the forces of supply and demand in the market. Traders can buy and sell Bitcoin at their own discretion, resulting in a constantly fluctuating price. They may panic-sell an asset, sending it down in a hurry, or create drama for no reason, resulting in a very fast spike.
Volumes have been written about market psychology. Maybe you want read more about differences between stock and crypto trading.
The underlying blockchain technology also plays an important role in determining Bitcoin's price. As new applications are developed, more people are using the blockchain for various purposes, driving up the demand for Bitcoin.
For example, IBM might adopt blockchain or even release a public statement about its passionate love for it, and guess what that will do to the price?
Finally, rumours and speculation about Bitcoin can also drive its price up or down. Sometimes these rumours are baseless and can lead to an irrational spike in prices. Similarly, negative news about the cryptocurrency can lead to a decrease in its price.
Is Bitcoin actually without value, as sceptics say?
We often hear speculations that go something like: “Bitcoin has no value”. And yet, after the abolition of the gold standard, neither does the dollar it’s usually compared toin order to prove how inferior it is. However!
- Bitcoin is ised for crimes, according to statistics, 800 times less often
- Its underlying technology is providing real usefulness for businesses (proofs included)
- Everyone who is anyone is after it and
- That’s not even 1% of the opportunities Bitcoin offers.
- Read more Bitcoin pros!
Which, to us at least, makes it pretty valuable.
