Today, there is no such a human being who wouldn’t have heard something about Bitcoin. Even if some people don’t understand how the whole blockchain system works, they have already accepted the reality where cryptocurrency is something you can invest in. But why is the price of just 1 Bitcoin so high?
What determines the Bitcoin rate? Considering that it’s not regulated by any government, people are curious about what impacts the price of Bitcoin. In this article, you can learn more about the factors that impact the cost of one of the most popular cryptocurrencies on Earth.
What Determines the Price of Bitcoin?
You already know that there is a limited amount of Bitcoins that can be mined. Unlike fiat currencies, no can create more BTC coins than the set number. The maximum number of BTC that can be mined is 21 million coins. When all the coins are mined, people can only trade and buy BTC. Moreover, the central bank or any other central authority does not regulate Bitcoin or its price, so who does? Who or what factor affects the price of BTC? Here are some important facts about the price of BTC:
- The two most important factors are demand and supply. If there is demand from users, they keep buying BTC, and then the price goes up. For example, recently Tesla, Elon Musk’s company, has bought around 1.5bn of the BTC currency. This caused a 17% rise in price on Bitcoin.
- The costs of producing BTC coins. As you might already know, the mining process is pretty expensive. You need certain equipment, electricity, etc. It takes money and it affects the price of digital currency.
- Competition. Yes, without a doubt, BTC is one of the most popular cryptocurrencies out there. But there are other coins to invest in. As a result, there are more options for investors and the prices regulate themselves. The competition among the most popular currencies keeps the prices down.
- The monetary rewards are set to miners of BTC for verifying the transactions made within the blockchain system. Whenever the transaction is verified by users, they receive certain rewards. This also impacts the price of 1 BTC.
- The number of exchanges where users can trade BTC for other currencies.
The price of BTC is volatile even though the currency is one of the most popular digital currencies out there. Even though the market of BTC is pretty big compared to other currencies, it’s not as big as the market of fiat money or even gold.
That’s why most cryptocurrencies have faced the prices go down and up so fast. The trading volume of BTC is big, but not as big as the trading volume of fiat currencies or even gold. You should also note that the prices are affected by positive or negative news. For example, if there is a rumor that it’s beneficial to invest in a certain currency, then the price might go up since the demand is increased.
Such factors as uncertainty of the future of cryptocurrency as of the trade of value, risks of the currency for big holders, security breaches also can impact the price of BTC. As you can see, most factors that impact the price of BTC are different from the factors that impact the price of fiat currencies, such as the dollar or euro.
Conclusion
Without a doubt, cryptocurrencies, especially Bitcoin, are gaining popularity among investors. It is hard to say whether it will become as popular as fiat money, but it is definitely a good investment if you buy it at the right time.
