What determines the Bitcoin price?
Updated: Sep 22
Unlike fiat and physical currencies like Dollar, Yen, Euro, and others, the value or price of Bitcoin is not defined or set by any entity such as a central bank.
Instead, the value is set according to supply and demand, or by the price users are willing to pay for the coin.
If you are not yet clear, the value of Bitcoin rises when its demand goes up, and the price falls when demands are less.
Demand relies on various factors like global events. Bitcoin’s price also declines or rises as per the economic developments happening globally, as the trade war between China and the US.
However, unlike fiat currencies that change as per political and economic developments, Bitcoin is an entirely decentralized system.
No one controls or governs it neither any third party nor central bank regulates the monetary base. Hence the creation of bitcoins follows a defined set of rules in strict security protocols.
And below, we will cover the details for you so that you can understand what determines the Bitcoin value.
The rules that Bitcoin follows
Transactions included in Bitcoin’s blockchain are fully encrypted and set in stone forever. Miners in the network strive hard to be the first node to resolve a complicated cryptographic puzzle.
The winner is the first node that can mine a valid block and gets a block reward.
A new block is added to the Bitcoin’s chain every 10 minutes and after receiving consensus from the members and all network participants. This ensures the block’s validity.
Moreover, all dealing in the Bitcoin network follows precise and inalterable rules or processes since its inception.
The rules are defined by the founder Satoshi Nakamoto and are mentioned in the first block known as the ‘Genesis Block.’ The only thing that changes in the Bitcoin protocol is the block rewards that miners receive.
Why is Bitcoin so volatile?
In terms of market value and trading volume, Bitcoin is at the top in the crypto world, but not many know that it’s still a small market than the other markets.
This means that Bitcoin prices can go significantly high or fall with less money involved.
Furthermore, Bitcoins are limited in circulation, and the creation of new bitcoins has defined and extremely strict rules. Plus, the trend is consistently reducing due to the shrinking rewards for miners.
News events can also damage or shine Bitcoin’s reputation. However, it is not the only factor that affects its value.
Many factors such as ambiguity in the future value of the digital currencies, currency risks for large Bitcoin investors and holders, as well as cyber threats and security breaches, also impact Bitcoin’s price. That’s why the market is unpredictable and highly volatile.
Could the Bitcoin value go to zero?
Yes, it can. Fiat currencies not in use are useless except to collectors who might give you a decent amount for a 100-year-old paper or coin. The currency’s worth is based on its apparent value.
Furthermore, remember that currencies that are not in use usually failed due to the introduction of successors or various events such as hyperinflation. Such developments devalue and affect currencies. As for Bitcoin, hyperinflation is impossible as no one can create it illogically, and its production is fixed up to a set amount.