Owing to its decentralised nature, Bitcoin doesn’t follow the monetary policy of governments. In addition, it is not backed by any underlying asset or government. This creates scepticism among investors and consumers who appreciate the price stability signals a fiat currency enjoys from government policy and support.
While a number of cryptocurrency exchanges recommended by trusted sites like Bitcoin Codes host trading platforms that have minor variations in prices, the overall market price of Bitcoin is the most recent price at which a transaction took place. However, Bitcoin value is much different and is dependent on the investor — some say that the inherent value of Bitcoin is much higher than market value. Others claim Bitcoin might not be worthless.
As Bitcoin is not issued by a central bank or backed by a government the monetary policy tools, inflation rates as well as economic growth measurements that usually influence the value of a currency do not apply to Bitcoin. This cryptocurrency acts as more of a commodity being used to store value, so these factors influence its price:
- The supply of Bitcoin as well as the market’s demand for this cryptocurrency
- The cost of generating a Bitcoin through the mining process
- The number of rival cryptocurrencies
- Regulations governing its sale and usage
- Media and news
Supply And Demand For Bitcoin
The price of Bitcoin is established in the same way that the value of the US dollar is determined: supply and demand. As with fiat currency, when the demand for bitcoin goes up the price goes up. When demand for bitcoin is reduced, the price is reduced.
Regarding the supply side, Bitcoin is a unique asset as its new supply schedule is absolutely inelastic. It is totally immune to fluctuations in demand. When most goods, together with fiat currency and gold, go through a rise in demand, producers react by increasing production and then returning prices to an equilibrium. When demand for Bitcoin rises, thanks to the difficulty adjustment, production of new Bitcoin does not rise.
Bitcoin’s Value (Price) Vs Valuation
When buying or selling any type of financial product, it’s very important to distinguish between price, value, as well as valuation. The value is the price at the moment, or what someone is happy to pay for something right now. Valuation is the complex analysis of an investment.
Bitcoin’s value is the current market price. Its inherent or actual value is challenging to pinpoint.
In the stock market, analysts examine a company’s financial performance and stock market prospects. The results are quantified and then rated with community-accepted metrics that establish the stock’s actual value. After this these metrics can be compared to the performance of other stocks in order to achieve a relative value.
Bitcoin can be compared with other cryptocurrencies to attain a relative value. However, it’s difficult to compare the inherent value of stocks or bonds to bitcoin as they are different instruments.
The value is relative to the investor. If Bitcoin meets your investing aims, risk tolerance and gives you the returns you want at a price that you’re willing to pay, that price is its value. This is the market price that you see when you look up Bitcoin’s price.