Bitcoin’s Value

Bitcoin and other cryptos are increasingly being used to solve real financial problems, such as the high cost of international money transfers or as an alternative to weak national currencies and traditional finance. But most people hear about crypto from the catchy price headlines. Whether it’s hitting an all-time high or falling dramatically, the price is grabbing people’s attention. 

But what sets the price of crypto? And why does it have value? 

Bitcoin is not a product that has a team behind it that decides its price. It’s a new form of money without central authority, and it trades like a commodity. So, even though it is a very new idea, its price movement is no different from that of commodities bought and sold for thousands of years. It simply responds to changes in supply and demand.

Demand comes from the amount of people who want to buy something, and supply is represented by the amount of people who are willing to sell that thing. Where the two meet, a price is formed.

So, the price of Bitcoin comes from the interaction between buyers and sellers. This interaction takes place on websites called cryptocurrency exchanges. As the name suggests, they facilitate the exchange – buying and selling – of cryptocurrencies such as Bitcoin. 

How much bitcoin is for sale? 

Bitcoin has a fixed supply that can never be changed, which is part of what makes Bitcoin so special. Also, a limited supply can help explain some price movements given the conditions of supply and demand. The total supply of Bitcoin is fixed, and the rate at which this total supply is reached is also fixed.

Bitcoin’s supply schedule–meaning, how many new bitcoins are created, and when–is dictated by a set of rules in the Bitcoin protocol, which the computers on the Bitcoin network run and protect. 

This set of rules states that there will only be a maximum of 21 million bitcoins, with a fixed number of bitcoins created every 10 minutes to reach this total, generated as a reward for special users of the network, called miners, when they confirm new bitcoin transactions in blocks of data that are added to a historical chain—hence the term blockchain.

The first block was mined in January 2009, when the reward was 50 bitcoins. Thus, every 10 minutes 50 new bitcoins were added. Once 210,000 blocks have been created, the reward is halved, which happens about once every four years and is commonly known as “halving”.

This process will continue until the number of 21 million bitcoins is reached, estimated to be around 2140. So the Bitcoin protocol schedules the creation of bitcoins at a fixed rate up to a known maximum supply, with no exceptions.

What affects demand for crypto?

Many things can affect when people want to buy bitcoin, and how much they want to buy. Just like gold, copper, wheat, orange juice, and other commodities, everyone has a different interest in the market. 

Here are a few key things that affect demand for bitcoin and other cryptocurrencies. 

1) Speculation . One of the biggest influences on bitcoin and crypto prices is speculation. People buy it as a tradable asset that they hope will appreciate, or because they are interested in seeing how it plays out in the future as a new asset class. 

2) Network effects . One of the important factors surrounding crypto adoption is that the value of each new user is not equal. Crypto is a monetary and financial asset class, and the network values of each asset grows exponentially with each new user.

3) FUD(Fear, Uncertainty and Doubt). It represents a negative sentiment on the cryptocurrency market, and this can drive the price of all digital assets down – everything from fake news to hacks or regulatory changes. 

4) Failing Fiat Currencies . In some countries that battle with serious inflation or even hyperinflation, people turn to crypto currencies as an alternative. This creates more demand in the market for crypto. Some examples where crypto has seen increased attention from monetary problems include: Venezuela, Turkey, Nigeria and others.

5) Regulation. This aspect of crypto can have a negative impact if governments try to protect their power over money against the threat of Bitcoin, decentralized finance, and other parts of crypto. Many countries are friendly toward crypto builders and users, but many others are hostile. 

8) ” The Hodlers “. This is a term that refers to long-term holders of Bitcoin or any other digital asset. They are committed to owning and supporting the growth of crypto regardless of what happens.