The price of a single Bitcoin has dramatically increased since its creation in 2009- with big ups and downs. This digital currency hit an all-time high of $60,000 in April 2021 but has fluctuated ever since. Despite the volatility, this virtual money continues to draw interest from investors of its long-term record of building and maintaining value, learn more about it with BitcoinPrime
However, unlike stock which has value, because it represents partial ownership of a company, it is pretty hard to pinpoint the value created by a decentralized digital currency with such a short history. The drastic price swings of this electronic money make investors worried. But you can invest in this virtual currency after considering these key factors influencing Bitcoin use.
Key Factors Influencing Bitcoin Use
Scarcity
The value of this electronic currency is a function of its scarcity. Bitcoin has a hard limit cap of 21 million Bitcoins. So, theoretically, if there is a limited Bitcoin supply, the price will go up fewer coins are available to purchase. However, if 40% of the coins are in circulation and the remaining 60% is reserved, the price may decrease when more coins become available for buyers.
This virtual currency also has limited utility like gold, the applications for which are mainly industrial. This virtual asset also has an underlying technology known as the blockchain, which is tested and used as a payment system. One of this digital currency’s most compelling use cases is conducting cross-border transactions. With Bitcoin, sending remittances home is fast and cheaper. There are no limitations when sending Bitcoin across borders. El Salvador was the first country to make Bitcoin a legal tender and is betting that this digital money will evolve sufficiently to become a medium of daily transactions.
Production Cost
The production cost is another factor that influences the value of this digital currency. Miners use specialized hardware or servers daily to produce new tokens and verify recent network transactions. Eventually, miners gain rewards through virtual tickets and a network fee for their efforts.
The miner’s network activity allows this digital money to keep working. So, if mining costs increase, the value of this virtual currency will also increase. It makes no sense for miners to spend their resources mining new Bitcoin tokens if the rewards are not big enough to cover the expenses and bring them profit. However, this is not always the case and isn’t uniform across all crypto, so ensure you research before investing.
But, according to economic theory, in a competitive market among producers all making the same product, the selling price of that product will tend toward its marginal cost of production. Moreover, the price of this digital currency tends to follow the cost of production.
Acceptability
While the total number of people who hold this digital currency is not entirely clear, some claim that Bitcoin adoption is as high as 114 million people. The number of these digital money users continues t grow daily as knowledge of the protocol spreads. Also, it is pretty easy to purchase, spend and store this virtual asset.
Bitcoin Exchanges
This digital money is available on many Bitcoin exchanges, but you can read a platform’s review before using it. Nevertheless, the availability of several platforms increases the number of people buying and using that token. If you need two or more businesses to swap this digital currency, you will pay a fee for each swap, raising the investment cost.
The Bottom Line
There are tons of factors that influence the use of this electronic currency. Social media and government regulation are among the factors that influence are also crucial. When the media portrays a positive image of this digital currency, the public will be more interested, increasing value. However, if the media portrays a negative image, the Bitcoins value decreases.