What Determines the Bitcoin Rate?
It’s difficult to find a person who wouldn't be aware of the existence of such a term as cryptocurrency, and more specifically, Bitcoin. The concept of Bitcoin was introduced several years ago and the blockchain was launched in 2009. An individual or group of individuals called Satoshi Nakamoto was the first to introduce cryptocurrency and now it’s one of the most popular to trade and buy.
A lot of people prefer investing in Bitcoin since it’s pretty convenient and grants some profit. This cryptocurrency (just like any other type of digital money) is not regulated by a central bank or any other institution which makes it even more appealing to buy Bitcoin. But what determines the price of 1 Bitcoin? Why is the price of 1 Bitcoin so high compared to fiat money? Let’s find out in this article.
There is not just one factor that influences the price of a Bitcoin coin, there are plenty of them. Unlike fiat money backed by governments, controlled by central banks, influenced by a monetary policy of certain countries, inflation rates, and other factors do not apply to Bitcoin. So what factors influence the price of 1 Bitcoin? Here are some major factors:
● The demand for a market for Bitcoin and the supply.
● The mining process cost of gaining Bitcoin digital coins.
● The monetary rewards are given to miners of the coin for solving the algorithms.
● All the cryptocurrencies competing with Bitcoin.
● The exchanges where people can trade coins.
● Regulations controlling the sales of Bitcoin.
● The internal governance of the coin within the system.
These factors are deciding for the cost of 1 Bitcoin coin. It should be also noted that the price of Bitcoin can’t be influenced by inflation since there is a fixed number of Bitcoins to be mined. Upon mining all coins, users will only be able to trade coins.
Demand and Supply
The supply of Bitcoin is impacted in two ways, which also impacts the demand and the price. First of all, the growth of Bitcoin overtime is decreasing. Meaning, they are produced at a slower rate each time. The supply is also impacted by the fixed number of Bitcoins that can be mined. The number is 21 million - it’s a fixed number of Bitcoins. These two factors impact the demand - the prices can go higher over time.
The special feature of Bitcoin is that each block can be mined only once every ten minutes. The more miners compete within the system to find this one block within a ten-minute interval, the higher are the costs of the mining process. As you know, miners use expensive equipment and pay high electricity bills to pay for mining. And this factor also affects the price of 1 BTC.
The availability of other popular coins like ETH, LTC, XRP, etc., means that the prices on Bitcoin are kept down. Even though Bitcoin is one of the most known and popular coins, there are still other coins to invest in. On the other hand, Bitcoin’s popularity gives an advantage to the blockchain so the prices on the coin are the highest.
Since the coin isn’t regulated by the central authority, it is governed by the miners and developers who keep the system going and safe. There is one particular problem that can affect the price of the coin - the number of transactions. Current software can maintain 3 transactions per second which are not enough in the current situation. This could lead to investors finding more competitive currencies to invest in.
Now you know that several factors are influencing the price of 1 BTC. Due to the increased demands on other coins, the prices won’t be too high while the fixed number of coins within the system ensures there is no inflation.