The value – or price/cost – of Bitcoin is synonymous with the cryptocurrency. It is often what most people will immediately think of when they hear about it. Indeed, it is hard to ignore when one single unit can be worth thousands to obtain.
Of course, those who are educated in crypto or have formed an understanding of it will not be surprised that this is the case. For others, it can be a little more difficult to get their heads around. The world of cryptocurrency to those who are not exposed to it can be very confusing, but there are simple things that can often help to point out why they can be worth so much.
Bitcoin: a Quick Basic Tutorial
To gain a quick understanding of Bitcoin and why it has obtained its value, it can be best to obtain an overall outlook on the digital coin. Many features can help to highlight why it is as expensive as it is, even though there are thousands of other alternative virtual currencies now available in the market competing against it and offering many of the same benefits.
Bitcoin was first introduced in 2009 under the pseudonym Satoshi Nakamoto, an identity that is still unknown today. It is not known if Nakamoto is a single person or a group of individuals, either. The coin was the very first token to be launched, thus starting the virtual currency revolution that has been experienced over the last 15 years.
It offers numerous benefits that traditional fiat currency (dollars, euros, GBP, etc.) cannot provide, which has helped boost its appeal, especially for individuals looking at alternative payment methods and solutions. Among the benefits that can be obtained are advanced layers of security, increased anonymity, and a level of transparency and quickness with each recorded transaction.
While these factors have contributed to its popularity, it is also worth noting that two other big aspects need to be considered. The first is in terms of its decentralized nature. It is not linked to a single entity (a bank or financial institution) therefore, it is not regulated or tied to another currency. It is also extremely scarce, with limited numbers available.
What Provides Value to Bitcoin?
If you take a look at the latest Bitcoin price conversion or in the traditional fiat currency of another country, it would not be a surprise to see some huge contrast in the number. As stated, one unit can be worth thousands upon thousands. It is unlike the typical exchange rate of 1 AUD being approximately $0.65 or thereabouts.
There are several reasons why this is the case. These include:
- Supply and demand
- Cost of production
- Availability on exchanges
- Competition
Is Supply & Demand the Biggest Contribution to Bitcoin Value?
It is hard to argue against the idea that the supply and demand of Bitcoin has led to the coin’s value being what it is and the reason why the cryptocurrency can be incredibly volatile. A basic economic principle is that the more demand and limited supply, the greater the price that can be paid, as there is a market for it.
Bitcoin is a scarce commodity. It has been capped at 21 million, which has helped to protect its value as it is not unlimited in supply. With it believed around 19.5 million bitcoins are already in circulation, there are not that many left to be mined. This can create pandemonium across the market, especially as more people become aware of cryptocurrency and how it can be used or invested in.
With the market conditions that are presented, people can become more willing to pay top-dollar to obtain the crypto, thus helping to drive its price up. Confidence in the market has always played a key role in its value, as this is what buyers will often go upon. If there is no confidence, the price will drop. If there is, it will retain its value or potentially increase depending on other variables, such as regulation changes, adoption across industries as an accepted payment method, or what the media reports.
Cost of Production Can Have an Impact
Much like in any other form of life, the costs incurred in creating Bitcoin can impact its value. The cryptocurrency is known for being extremely expensive to mine, using an incredible amount of energy and electricity.
According to a report by the New York Times, mining Bitcoin can use more electricity than many countries, with it believed an average of 266,000 kilowatt-hours (kWh) of electricity being used by someone doing it themselves. This can be a significant outlay for the miners, which is why they can charge a fortune for any bitcoins they may have obtained.
Availability of Exchanges Can Impact Bitcoin Value
When a Bitcoin is made available on an exchange, it can have an influential impact on its value. In doing so, it becomes accessible to traders and investors. If the trading platform has a substantial user base and interest is high, then this can see the liquidity of the asset surge, leading to the value of the token to increase or hold.
Additionally, when a coin is made available for exchange, it can be picked up by media outlets. They can then drive more people to the market, which can increase the demand for the cryptocurrency. More demand will equal a shift in the price, especially due to its scarcity.
Competition’s Role in Bitcoin Value
As mentioned previously, there are thousands of alternative cryptocurrencies now available. This has flooded the market, but with Bitcoin’s reputation, it does not appear to have hurt the coin.
When people talk about Bitcoin, they can often mean cryptocurrency on the whole and not the actual specific coin. This helps highlight the power and influence it holds across the market and why it has managed to keep itself way out in front in terms of its value.
The Bottom Line
When trying to understand the value of Bitcoin and why it has been able to reach the heights that it has, it is important to remember that there are various factors that contribute to it. Its scarcity is arguably one of the biggest as this can directly influence the demand behind it, thus potentially driving the value of the cryptocurrency up or at least helping it to maintain itself.
“Disclaimer: This information is of a general nature only and should not be regarded as specific to any particular situation. This should not be taken as financial advice to buy, trade, or sell cryptocurrency or use any specific exchange. This is not intended for use as investment, financial or legal advice as each individual’s need will vary.
Binance Australia is not affiliated, associated, endorsed by, or in any way officially connected with any individual or organisations mentioned in the article. Binance Australia is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly by use of this newsletter and expressly disclaims any and all liability for any loss or damage you may suffer.”