What Are The Factors Determining The Price Of 1 Bitcoin? - Part 1
How do you determine the price of a Bitcoin? There are a lot of factors determining it. A sneak peek into these factors.
The Evolution Of Bitcoin
Developed in 2009, the Bitcoin cryptocurrency was found by Satoshi Nakamoto whose name was given to the unknown creator of this virtual currency. The transactions that were recorded in a blockchain was thereby shown transaction history for each unit and is used to prove ownership. Even though buying a Bitcoin is different than purchasing a stock or bond as the Bitcoin is not a corporation, consequently, there are no corporate balance sheets or form 10-Ks to review. It has a lot of differences as unlike investing in traditional currencies, the Bitcoin thereby is not issued by a central bank or backed by a government, therefore, the monetary policy, inflation rates, and economic growth measurements typically influence the value of currency do not apply to Bitcoin. Bitcoin prices, on the contrary, are influenced by the following factors.
The supply of Bitcoin as well as the market demand for it
The cost of producing a Bitcoin which is through the mining process
The rewards issued to Bitcoin miners who are verifying transactions to the blockchain
The number of competing cryptocurrencies thereby
The exchanges on which it trades
Regulations that are governing its sale
Its internal governance situation
Supply And Demand
Those countries that do not have fixed foreign exchange rates can partially control how much of their currency circulates thereby adjusting the discount rate changing reserve requirements or engaging in open market operations. These options are thereby chosen by a central bank that can potentially impact a currency’s exchange rate.
There are two ways in which the supply of Bitcoin is impacted.
The first one is that the Bitcoin protocol allows new bitcoins to be created at a fixed rate. There are new bitcoins introduced into the market when miners process blocks of transactions and at the rate at which new coins are introduced is designed to slow over time. The following is the case in point: as the growth has slowed from 6.9% to 4.4% and then to 4.0%, it has created scenarios in which the demand for bitcoins increases at a faster rate than the supply increases driving up the price. The slowing trends in Bitcoin circulation growth are due to the halving of block rewards offered to Bitcoin miners and can be considered as artificial inflation for the cryptocurrency ecosystem.
The next and final point is supplied may also be impacted by the number of bitcoins the system allows to exist. While this number is capped at 21miliion where once this number is reached mining activities will no longer create new bitcoins. As an example of this, the supply of Bitcoin reached 18.1million in December 2019, thereby representing 86.2% of the supply of Bitcoin that will ultimately be made available. It is then that therefore once 21million bitcoins are in circulation prices depend on whether it is considered practical, legal, and in-demand determined by the popularity of other cryptocurrencies. Again the artificial inflation mechanism of the halving of block rewards have no longer an impact on the price of cryptocurrency however at the current rate of adjustment of the block rewards, and subsequently, the last Bitcoin is not set to be mined unless and until the year 2140 or so.
Vying for user attention, there are hundreds of other tokens while Bitcoin may be the most well-known cryptocurrency. It brings that Bitcoin is still the dominant option concerning market capitalization as altcoins include ether (ETH), XRP, Bitcoin cash (BCH), Litecoin (LTC) and EOS are among the closest competitors as of January 2020. Further on new initial coin offerings are constantly on the horizon mainly due to the relatively few barriers to entry. Whereas the crowded field is good news for investors as the widespread competition keeps prices down and fortunately for Bitcoin the high visibility gives it an edge over its competitors.
Finally, Why Cryptocurrencies?
Due to the safety and security of the cryptocurrencies, there are more contenders in this field of competition. As there are a lot of factors regarding its popularity, there are many of the currencies that help in bringing down the competition as more and more currencies are vying for the top position. This discussion is continued in the next post where more factors are looked into that helps the Bitcoin to remain in popularity. The price of the Bitcoin has very many factors influencing it as they have many reasons to be in circulation. Most of these facts are explained in detail in the continued post. So keep your fingers crossed and listen carefully. We are bringing you more information in this regard.