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The market of digital financial assets is being dominated by bitcoin news. The virtual currency market has never been so much highlighted in the financial sector. 2021 was a good year for crypto traders, as many managed to earn a high return from the rise of bitcoin prices. The investment by Tesla, Micro Strategy, and Square in bitcoin has a great impact on bitcoin’s market cap and price.
The level of uncertainty in the virtual currency market has never been low, in 2018 cryptocurrencies lost their worth to over $ 100 billion on a global scale. Many countries were adversely affected by the fall, and millions of digital currency traders failed to retain their confidence in cryptocurrencies. Obviously, it was a massive setback. Regardless of the worst year for the digital currency market, many crypto holders and investors managed to survive through the recessional phase of the crypto market.
The bitcoin value is directly linked with demand and supply, but there is no such factor that could determine the level of uncertainty. The bitcoin value might skyrocket within few days, or fall tremendously without a warning. This article would help you to go through some of the critical factors that determine the bitcoin value.
Demand and supply
Bitcoin is the most legit cryptocurrency with more than 51% market share in the cryptocurrency market. Although there are more than 4000 digital currencies, bitcoin dominance is affected to a limited extent. There are several ways through which bitcoin demand is affected, like political events, investment by global companies, and regulations by the financial authorities. Bitcoin value appreciates when demand rises, and depreciates when demand falls.
As a matter of fact, bitcoin is bounded by the limits, with only 21 million bitcoin in supply, and more than 18 million are in the market, and almost less than 2 million bitcoins are only left to be mined. Bitcoin will run out someday, hence its scarcity makes it a special virtual currency.
So, bitcoin value heavily depends on its supply, if the supply is high and there is an increase in the number of miners, the demand would fall. On the other side, if the supply falls it would lead to an increase in demand, and as a result bitcoin value would appreciate.
Cost of production
Besides the fact that bitcoin is a digital asset, but there is still cost associated with its mining. Bitcoin mining is among those businesses that require less finance to initiate. The mining of bitcoin requires the extreme use of electricity and efficient hardware. These two are the main costs related to bitcoin mining. In countries where electricity is inexpensive, the mining process is much cheaper as compared to those countries where electricity is expensive.
Now the game is simple, more miners jump into action and try to mine bitcoin, the complexity to solve the cryptographic equations increases, which further leads to the increased cost to mine bitcoin.
Competition with other cryptocurrencies
There is no doubt that bitcoin is not the only digital currency that has gained popularity in recent years, there are some amazing virtual currencies that managed to strengthen their position in the crypto market. Ethereum and Litecoin are considered the closest competitors of bitcoin. The barriers to entry in the crypto market are quite low, hence the number of cryptocurrencies is on an increasing scale.
The emergence of altcoins also play role in determining bitcoin’s worth, but still, it would take few years for any other cryptocurrency to reach where bitcoin is now.
Hype and manipulation
This is not a secret, that bitcoin price was artificially hyped to increase the trade volume. The fake demand for bitcoin was also escalated in order to increase bitcoin prices. In 2018, the a tremendous fall in bitcoin price from 20,000 to 4000 after the introduction of bitcoin futures.
The artificially hyped nature of bitcoin has been very helpful in bitcoin’s journey to the “world’s most-used virtual currency”. The actual exact worth of bitcoin is still not possible to determine, all the figures and stats might be precise but not accurate.
There are few other factors like media influence, political events, and regulatory changes that affect the worth of bitcoin. In order to stay tuned with bitcoin’s recent updates, connect with bitcoin trading platforms like Bitqz.