Who Determines Bitcoin’s Value?

Who Determines Bitcoin’s Value?

Bitcoin’s value has undoubtedly increased significantly since the launch of this virtual currency. Initially, people used Bitcoin as electronic money on the economic fringes. However, Bitcoin is slowly becoming a mainstream currency. Some people perceive it as digital gold, meaning it’s a scarce virtual asset.

As a way to respond to the economic collapse risk during the COVID-19 pandemic, some governments have flooded their markets with traditional money from central banks. The goal is to boost spending, thereby helping save their economies. Unfortunately, increasing the money supply erodes the value. Consequently, many people search for inflation-resistant assets that do not lose economic worth when governments make such moves. Bitcoin appealed to many people as a hedge against inflation. It also promises better returns than other assets in such a climate.

Understanding Bitcoin’s Value

Its value as electronic money is what gives Bitcoin its value. This virtual asset also has similar characteristics to cash. It’s portable, durable, fungible, recognizable, scarce, and divisible. However, Bitcoin’s features’ basis is mathematics properties rather than physical properties like silver and gold. Bitcoin’s value is also not based on trust in authorities like banks and governments, which is the case for fiat currencies. Essentially, Bitcoin’s backing is mathematics.

This virtual currency has all attributes that give money its value, except significant adoption and trust. But this virtual currency has a growing base of merchants, users, and startups accepting it. And this points in the right direction as its value will increase with more people using it as a payment method.

Being the largest virtual currency by market capitalization, Bitcoin has a supply of 18,590,300 tokens in circulation. Its maximum reserve can’t exceed 21,000,000. The hard-coded Bitcoin limit is impossible to change, thereby creating an artificial scarcity. Therefore, Bitcoin’s value will keep increasing over time.

Bitcoin’s Value Determination

Most people purchase Bitcoin via online platforms called crypto exchanges. Platforms like Bitcoin Prime sell this virtual currency at varying prices. Additionally, the value of this digital asset keeps fluctuating. And this can easily prompt you to wonder what determines the worth of this cryptocurrency. If you click on this, go and register with this crypto exchange, you will notice that the Bitcoin price is not always the same. So, what determines its value?

Well, supply and demand determine Bitcoin’s price. An increase in Bitcoins’ demand increases the price of this virtual currency. And a decrease in the market demand decreases the worth. Bitcoin’s protocol limits its supply. Miners create new Bitcoins at a decreasing and predictable rate. That means its market demand follows this inflation level to maintain a stable price.

The Bitcoin market is still relatively small. Therefore, moving the market price doesn’t require a significant amount. That’s why Bitcoin’s price has always been highly volatile. People predominantly trade Bitcoin on online crypto exchanges. However, they also send, receive, and store it in digital wallets.

However, Bitcoin’s network groundbreaking aspect is that it draws on computer scientists’ and cryptographers’ work to function in the blockchain. Being a public blockchain means the Bitcoin network presents an immutable database. Thus, nobody can change the transaction history record.

Final Thoughts

Bitcoin has a booming value due to social sentiment, ideology, and hope. Many people believe that Bitcoin is the future’s currency because it fits in the current digital world. Today, this virtual currency is attracting institutional investors’ interest. Bitcoin’s value upward trend shows that many people have faith in the technology behind this digital currency. What’s more, Satoshi Nakamoto created Bitcoin to increase value over time due to its scarcity or supply limit. Thus, more people are rushing to purchase Bitcoin before miners hit the 21 million marks. And this increases the value of this virtual currency.