Which Factors Determine the Price of Bitcoin?
Bitcoin is the most important cryptocurrency today. It has generated attention from crypto enthusiasts, the general public, and foreign governments as a valuable decentralized digital currency. Still, what factors determine the price of Bitcoin? This guide explains the fundamentals that increase or decrease Bitcoin’s market value. Read on to learn more.
The fundamental law of economics states that when supply is high, demand is low, or vice versa. The same rules apply to all commodities, including cryptocurrency. While there is a bit more to it with Bitcoin, yet the general premise remains the same. Given the attention on Bitcoin, its supply is open to the public. You can see its supply decrease over time in a process known as halving. When halving occurs, Bitcoin supply is cut in half, leading to greater demand. This occurs every four years.
Relatedly, operational costs play a role too. Although cryptocurrencies have used a different blockchain infrastructure than other commodities, the cost of production still plays a fundamental role in its market value. The cost of infrastructure and electricity play the largest roles here. Different mining algorithms can affect production rate, which affects its value.
Despite being the largest and most well-known cryptocurrency today, competition still impacts Bitcoin’s market price. Other cryptocurrencies, like Ethereum or Solana, are continuing to dominate the crypto world in similar ways as Bitcoin. The rise of decentralized finance has created a new market of alternative cryptocurrencies in the market. In the same vein as other trade goods, this competition plays a role in the value of Bitcoin. When other competing cryptocurrencies increase in value, Bitcoin’s ecosystem becomes destabilized as investors switch to other cheaper options.
The final factor that determines the price of Bitcoin is media attention. Naturally, more media attention highlighting a certain good is going to increase its demand. Given that supply is halved every four years, the increase in demand drives up market value. Media attention serves a dual purpose: it informs investors about the state of the cryptocurrency and the public about the crypto itself. If there was no public attention, then there would be far less demand and an ever-decreasing price for its share value.
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