Bitcoin refers to a virtual coin infrastructure with decentralized attributes. Transactions are present on the blockchain, which displays the details of the exchange. Bitcoin is different from the conventional stock market and the traditional monetary system. One can buy bitcoin and acquire a hold of it, or one can also mint it.
Since bitcoin is completely independent of government bodies, these parties are not powerful enough to decide its price. If you are interested in trading bitcoins, visit bitcoins revolution to get a complete and detailed guide to trading bitcoins. Multiple other factors seem to characterize the selling value of bitcoin. Let’s discuss the factors that determine the current price of bitcoin.
Key operations
- Government authorities do not have the authority to issue a bitcoin unit, so BTC is not subject to any possible government-sanctioned policies. However, government bodies are creating a different regulatory framework for cryptocurrencies, and authorities have classified these coins as legal certainty, security, and commodity and money services businesses.
- The fundamental factors that show the market value of this cryptocurrency are its supply chain, the demand shown in the market and the number of those competing for the digital coins.
- Bitcoin contains a certain supply and no government can regulate this supply.
Understand the factors that characterize the market value of Bitcoin
No government body has enough potential to authorize any act related to bitcoin, but it can regulate. Monetary policy in addition to the deflationary character of bitcoin seems to be a completely independent factor. Theoretically and practically, there are many surprising facts about bitcoins and more factors that show the value of this coin listed below.
Supply
The supply chain of this cryptocurrency provides a fixed pattern and supplies a certain amount of BTCs in circulation. Miners can hold these minted BTC or sell them to other traders or investors. The supply chain of this cryptocurrency changes every four years. The Bitcoin halving is the event that is responsible for changing the supply chain of this coin.
demand
The demand for a commodity, equity or cryptocurrency can increase significantly when there is a shortage of supply, and the same happens with bitcoin. As mentioned above, the bitcoin halving has been called an event that cuts the supply chain of this cryptocurrency in half.
And this event is also responsible for increasing the demand for BTCs. The demand for this coin is impeccable and has been boosted by the lack of supply and institutional adoption and bitcoin news. Furthermore, bitcoin maximalism is an ideology that seems to increase the demand for this coin to an extraordinary extent.
Marginal cost of production
The marginal cost of production is the cost of mining bitcoins. Similar to any other commodity, the cost of production is a significant factor in determining the spot price of a single unit of bitcoin.
In the context of bitcoin, mining cost is an estimate of the actual cost of bitcoin mining hardware and other infrastructure costs. The cost of production in terms of bitcoin or any other cryptocurrency is not clear and depends on the geopolitical location.
Usually, the cost of bitcoin production is not characterized by geopolitical location and is determined by the price of electricity. However, since each country charges electricity differently, the cost of producing bitcoins varies in each region.
For mining, the cheapest countries are Kuwait, Venezuela, Bahrain, Myanmar and China. The estimated marginal cost of producing bitcoin combines electricity costs and significant infrastructure costs. The marginal cost of production is accordingly affected by the difficulty rate of the bitcoin network.
Competition
Competition seems to have a huge impact on the current price of this cryptocurrency. Previously, bitcoin owned 75% of the cryptocurrency market, but now bitcoin’s dominance is not even half of this figure.
You can think about how the dominance of this cryptocurrency affects its spot price; when the competition in the virtual coin industry increases, people start to consider better technical options than bitcoin.
Bitcoin consists of an old bunch of technology, but advanced cryptocurrencies with robust technical aspects. Bitcoin is up only 65% in the previous year, but other altcoins like Binance coin and ether are up more than 1000%. So, it is undoubtedly that bitcoin is a safer and more profitable investment option, but people are always looking for more profit because some altcoin projects are reliable.
The above section describes some factors that determine the spot price of a single bitcoin.
Read more Author: Joseph Williams Writer
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Source: HIS Education