Bitcoin Value Variation
If Bitcoin is something that you’ve been intrigued by, then perhaps you’ve also wondered about how the cryptocurrency works, or more specifically about what exactly affects the value of the cryptocurrency. It’s an understandable thing to want to know about, especially if you’re wanting to involve yourself in it. After all, you’ll need to watch out for certain things to realize if the value of your Bitcoin is going to be affected in any significant way. So, that’s why we’ve brought together this selection of tips and information for you to read through – so that you can inform yourself on everything that alters the value of Bitcoin.
How Does Bitcoin Have Value?
The first and most obvious question about Bitcoin is that if it’s a virtual currency, how can it have any value at all? If you can’t physically see it or touch it, then how can it have a value assigned to it?
Well, the answer to this is that everything lies in basic economics – namely supply and demand, scarcity, and utility. For the latter two of these, if something is quite rare to get your hands on and is useful at the same time, it also must have a value and demand a specific price.
So, let’s utilize gold or silver as an example here. Why does it cost so much to buy something that is pure gold? Well, because it’s quite rare and is harder to extract than many other commodities. Furthermore, because of this, it is limited as far as supply is concerned. Lastly, gold and silver have practical uses that consumers get satisfaction from. Therefore, the combination of scarcity and utility here is what creates a value for these metals, with price being determined depending upon the market’s supply and demand for such.
As with anything that has value, Bitcoin needs to be useful. Fortunately, it is useful in a number of ways – for example, it is divisible, meaning that you can pay someone a smaller amount than a single Bitcoin if need be. It’s also easily verifiable via the blockchain. Not only that, but the cryptocurrency has other desirable features, including how fast it is, the fact that it’s decentralized, and that it has the potential to change world finance.
One other thing to remember is that Bitcoin comes with undeniable utility when you compare it with other cryptocurrencies. No other digital currency is used as widely as Bitcoin at the moment, and thousands of merchants already accept it as a payment method. Therefore, as more and more people become involved with it, the demand grows, which the supply needs to meet. With the increase in popularity of such, the more useful it becomes to everyone else, and in the process, the more valuable.
So, Is the Value of Bitcoin the Same as Its Price?
Value and price – where Bitcoin is concerned – are not the same thing. The price of Bitcoin is determined by the market in which it trades. This is where the whole supply and demand aspect comes into play. This works exactly the same for anything else. If you buy a wedge of cheese from the supermarket, its price will have been determined via supply and demand.
In the ongoing interaction that takes place between the buyers and sellers of Bitcoin, trading with one another will determine the specific price of the digital currency. However, there are certain things that will affect both the price and value of Bitcoin as well.
What Affects the Value of Bitcoin?
The value of a single Bitcoin is tied entirely to the laws of supply and demand. As mentioned before, the price is determined by what the market is willing to pay for it. If more people want Bitcoin, the price increases. If more people want to sell Bitcoin, the price will decrease.
Because of the relatively small market size of Bitcoin (when compared with fiat currencies and commodities), a smaller amount of money can shift the price of the coin more significantly. If something goes down in price, then its value will also diminish. In the same way, if something increases in price, then the value of it will also ascend. Therefore, it’s difficult to speak about the value of Bitcoin without mentioning issues that affect the price of it.
The biggest factor affecting the price and subsequently the value of Bitcoin is the continued supply and demand rate. The supply of Bitcoin comes from the mining of them, for which we also provide a guide. The demand for Bitcoin depends upon the cryptocurrency community. By this, we mean that if the coin is popular and has a big amount of trust amongst these people, demand for it is sure to increase. The supply of Bitcoin is also very controlled, with 21 million being able to be brought into circulation, and no more. Because of this, demand for such will continue, and it is expected that the price will continue increasing as well.
Something else that already has had and may potentially continue to have an effect on Bitcoin values is if countries choose to recognize the cryptocurrency and lay down regulations regarding it. Some locations, including the United States, Japan, and the United Kingdom, have already recognized it as a legal payment method, bringing forth laws about it. Take for example Japan, where there are many stores that accept payments in Bitcoin. Once the government brought out regulations and “legitimized” Bitcoin, the value of it soared. This has also forced many other countries to consider regulating the cryptocurrency.
On the other side of the coin, if a government chooses to impose restrictions or go as far as banning the use of Bitcoin, this also drastically changes its price and value. Some countries want to eliminate Bitcoin from being used due to how anonymous the transactions are and the potential for criminal use.
One more thing that can also affect the price and value of Bitcoin is the media. It’s so easy to find reviews and news about everything today, meaning that it doesn’t take much for a big-name reporter or news channel to say something negative about Bitcoin before its value is sent spiraling out of control. The same can be said if such were to happen in a positive light, too. This could see the value of Bitcoin consequently skyrocket. Over the years, news about hackings, the loss of Bitcoin, the banning of ICO in China, and more have seen the price and value of Bitcoin fluctuate beyond belief. It doesn’t take much for a story about Bitcoin to be blown out of proportion by any kind of media, and this is definitely something that can largely impact its value.
So, Why Is It That the Price of Bitcoin Changes So Often?
Because there are so many factors that affect the price and value of Bitcoin and because it’s still a relatively small market in comparison to others, the slightest bit of news concerning it can prove to instigate a dramatic change. If there is ever any uncertainty over the current or future possibilities of Bitcoin, then this affects its value on a fairly constant basis.
Politics and the aforementioned ability of governments to regulate or restrict Bitcoin possibilities will always send the currency spiraling out of control in one direction or the other.
However, one thing that can also very much affect the price and see swift changes in value is Bitcoin “whales.” These are people who possess large amounts of the cryptocurrency, and they can easily manipulate the overall market by selling or buying vast amounts at once. Obviously, this is due to the fact that there is no central financial institution that is able to keep things under more control in this respect.
Another thing to remember, as well, is that multiple other cryptocurrencies already exist, and there’s room for a lot more to become available, too. If these other digital currencies grow in popularity, the demand for Bitcoin also increases alongside. With the increase in demand, the price increases, and so too does the value.
So, with so many issues affecting the Bitcoin market, it’s easy to see why its price would fluctuate on such an extreme level. Yet if the market grows considerably, there is potential for the price fluctuations to be less dramatic and somewhat more controlled.