At the time of this publication, the value of Bitcoin is $60,921.50, which, according to experts, is an all-time high. Although sometimes the crypto crumbles to record lows on various platforms, its value has grown exponentially overall.
If you are interested in finding the Bitcoin price before trading, holding, participating in liquidity provision, or doing any other investment, you could check on various platforms or consult with experts. Easy!
But if you are interested in understanding what determines the Bitcoin price, then you have to dive deeper into research. This article will take you through the determinants of Bitcoin price so that you can hold, contribute to liquidity pools, and trade wisely.
How Supply Determines Bitcoin Price
Those in business know that scarce assets have a high price and vice versa. Bitcoin price has hit the roof because the supply is lower than the demand. The blockchain controls the production of new BTC, which is at a fixed rate, and this definitely creates a low supply.
For instance, the supply of BTC in 2016 was 6.9%, then reduced by 4% by 2018. The supply has been dwindling since 2009 when crypto was introduced.
How Demand Determines Bitcoin Price
On the other hand, demand also affects the Bitcoin price in the opposite way supply does. When you visit any crypto marketplace such as Loop Finance, the demand for BTC and other crypto is always higher than the supply.
This creates a shortage, and consequently, the price increases. Those behind the crypto say that as the coin gains preference as a medium of exchange, the demand is getting higher and higher.
How Regulations Affects Bitcoin Price
Bitcoin is unregulated and decentralized, which makes it a great financial solution for the cross-border medium of exchange. However, financial regulations in different states affect the coin in one way or another.
Strict countries make investors shy to invest in Bitcoin, which negatively affects its price. The poor uptake hinders the value from growing. However, the acceptance and rejection in a region have pros and cons in relation to the Bitcoin price.
How Competition Affects Bitcoin Price
Bitcoin is very popular, but other upcoming cryptos are promising as well. It dominates crypto markets, but still, other cryptos have taken a portion of users. This reduces the value of BTC and its uptake as well.
Ethereum, for instance, has a boom on the ERC-20 tokens, and this has definitely affected the value of BTC negatively. If Bitcoin was one of only a few crypto coins, its price would have been better.
Cost of Production
The marginal cost of production of BTC directly affects its price. This is the cost of electricity, infrastructure, and time used by miners to produce new tokens. Miners are rewarded with newly-minted coins once they solve algorithm problems and approve transactions.
They use powerful machines and computers equipped with expensive chips and processors. All of this is factored in to determine the Bitcoin price.
If you have been keen when using crypto investment markets, you will notice that the Bitcoin price changes without warning. The above determinants play a big role in this. Now that you know, it will be easy to make wise decisions.
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