What Factors Affect the Price of Bitcoin?

Factors Affecting the Price of Bitcoin

Price of Bitcoin: Bitcoin is one of the most popular cryptocurrencies in the market. The coin was released in 2009 by an unknown creator named Satoshi Nakamoto. Since then, the currency has gained more attention from new and pro investors alike.

However, the major question that most investors have is how much does 1 bitcoin cost? Or rather what are the factors that determine the cost of 1 bitcoin?

Now, this is a fair question to ask considering bitcoin is not a fiat currency and hence is not regulated by the central bank. So, the cost will have major fluctuations.

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But what causes these fluctuations in bitcoin costs? Let’s find out.

  • Supply

Just like any other product, the reduced supply of coins will definitely increase its prices. With bitcoin designed to be released at a fixed rate eventually slowing down over time has definitely affected its prices. If you observe the trends, bitcoin release has slowed down from 6.9% in 2016 to just 4% in 2018.

This is the result of bitcoin halving which means there isa lesser number of coins circulating in the market thus increasing its prices over time.

  • Demand

The high demand for any coin will certainly drive its prices. And such is the case with bitcoin! Since its release, the cryptocurrency has gained massive momentum. Although the currency is yet to find its way into replacing fiat currency (which we highly doubt will ever happen!), it has gained attention in a situation where the regular currency has been devalued such as Venezuela.

Or bitcoin has gained attention from criminals who make bigger transactions. Also, with a lot of media attention, the demand has increased exponentially. So, a combination of high demand and lower supply has given a huge bump to the prices of bitcoin.

  • Production Costs

Bitcoin costs are heavily determined by the production costs. The costs are affected by direct costs incurred by infrastructure and electricity for cryptocurrency mining. Along with direct costs, there are indirect costs that are incurred due to the complexity of the bitcoin algorithm.

The more complex the algorithm is, the more time miners will need to crack to code and acquire new coins. This will increase the overall consumption of electricity and miner will need to invest in complex systems. This overall process of cracking the algorithm will increase or decrease bitcoin production thus affecting its costs.

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  • Competition

Yes, bitcoin is amongst the most popular coins in the market. However, there has been a massive release of new coins that are competing for attention. And some have been successful in effectively affecting the market capitalization of bitcoin.

For example, Ethereum blockchain’s token Ether (ETH) has given tough competition to bitcoin. Ethereum blockchain is set to revolutionize the way financial institutions work. Hence, investors are giving the coin immense attention. This has affected the costs of bitcoin.

Other coins including Ripple XRP, Cardano ADA, and more have also gained attention from investors. This tough competition from other coins combined with production costs, supply, and demand has increased the price of bitcoin over time.

  • Regulation of Bitcoin

The cryptocurrency market is highly unregulated and so is bitcoin. This lack of regulation has invited criminal elements to use bitcoin as a currency of illegal transactions. Hence, several investors are still skeptical of investing in bitcoin making the market more volatile.

However, if more governments make bitcoin legal and include it in their daily transactions, it will bring more stability to the market. Investors will invest in bitcoin and affect its overall supply and demand thus affecting its costs.

  • News Development

The latest news regarding the market will have a major impact on bitcoin prices. This will especially include news related to the regulation of cryptocurrency.

Apart from this, airdrops and hard forks can also affect bitcoin and investors’ drive to invest in cryptocurrency. Both these factors and more news can increase the price of bitcoin over time.

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Final Takeaway

So, what is the price of 1 bitcoin? Well, the answer is not so simple! With several factors affecting the price of bitcoin, it can rapidly increase or decrease thus making the market more volatile.

To know more about cryptocurrency, guide, insights, and news, keep reading Coin Informer!