Since its launch in 2009, having its roots from Bitcoin to 2017’s Cardano, it is quite a puzzle how cryptocurrencies arrived at today’s popularity and value. Having a price of a mere few cents to sky-rocketing amounts, that is without even bearing an official price from the beginning as it was not even selling. It only developed a price as soon as the first exchanges transpired. This article will have an engaging discussion about what dictates the price of cryptocurrency, especially Bitcoin.
The Role of Indexes and Exchanges
There is not one person or organization or entity or law or index that solely determines the value of cryptocurrencies – it is the market. What dictates the price of cryptocurrency in the market? There are myriads of indexes with varying price information from varying sources in this so-called market. You can check and evaluate for differences in spot prices and the historical behavior of a particular cryptocurrency.
It is also worth mentioning that these index sites are not where you trade cryptocurrencies. These index sites gather and accumulate pricing information across the many cryptocurrency exchanges that are out there and create an average out of it. Each of these exchanges set its price based off on data about trades made at a given time.
What makes a difference in value on one exchange from all others is a data source. Not one index will have the same basis as they take from many different exchanges. If you are trading with cryptocurrencies, you need to know that there will be a variance in the average price across exchanges as each has its supply and demand.
Cryptocurrency prices will fluctuate at any moment as its market is highly volatile, all depending on what information is available or triggering events that occur.
What Dictates the Price of Bitcoin?
Unlike fiat currency, as a cryptocurrency, Bitcoin is not controlled by any government or regulation or entity or backed up by a particular commodity such as gold that has a known value. With the spring of many emerging cryptocurrencies, to this day, Bitcoin remains the most traded, widely accepted, and used in an ever-growing number of transactions and merchant stores globally.
Given its value, popularity, and utility, what dictates the price of Bitcoin?
Simply put, it is the law of supply and demand or the surrounding information and events that drive people to buy and sell. The existence and effect of either buying or selling pressure drive the price either up or down.
Despite its popularity, Bitcoin still trades relatively small versus other industries at the global market level. Since its creation, the developers have made it transparent that the maximum supply will only be twenty-one million. Currently, there are some eighteen million in circulation. With smaller trade volumes, Bitcoin prices fluctuate at the slightest trigger and money involved. Any single event, news, or person can influence or manipulate Bitcoin’s supply and demand – it’s a highly volatile, extremely risky currency.
What dictates the price of Bitcoin is essentially the same as what dictates the price of cryptocurrency, but here are the bare minimums you need to watch out for:
Bad News – Fear, Uncertainty, and Doubt
News that brings out the Three Ugly Sisters of Crypto (Fear, Uncertainty, and Doubt) can have a mixed impact on prices. Recent events like the Internal Revenue Service (IRS) considering Bitcoin an asset for tax purposes affect Bitcoin’s use and, therefore, its supply and demand.
On the bright side, having achieved this recognition as a currency will positively affect the market. On the dark side, this will make things complicated to users once tax laws apply to Bitcoin transactions. It will make the adoption rate slow, and users will find it too troublesome for its worth.
Even small rumors spread wide enough can cause significant shifts in prices.
Holders of a more considerable amount of Bitcoin can easily manipulate the market. For example, what the dubbed “BearWhale” seller did to the market when he posted to sell a massive amount of Bitcoin at half the price it’s supposed to be. And although it was a temporary event, prices went down almost to the gutter. There was much debate about the logic in “BearWhale” liquidating that amount of Bitcoin.
Cryptocurrencies, in general, are developed with the open-source model. The community is responsible for making inputs on the platforms’ design and its modifications. Any security vulnerability is exposed to produce robust open-source solutions—news of being hacked or any tune-up on security influence supply and demand.
How Is Bitcoin Price Determined?
There is no central authority or geopolitical force that creates and regulates Bitcoin. Bitcoin is not born from any law or economic policies, political agreement, and valuable commodities do not support it. In this section, let us also know if determining the bitcoin prices will riposte to the query what dictates the price of cryptocurrency? And so, how is Bitcoin price determined?
The system on which Bitcoin is from is an open system that is fully decentralized. It is a universal recording of any verified transactions with consensus from the community before setting in finality with no chance for modifications. Bitcoin is mathematics, and its creation follows precise, specific rules with rigid protocols.
Bitcoin miners compete with each other within the network to solve cryptographic puzzles at varying complexities. The winner will be the first to mine a valid block and claim the related block reward. For mining rewards and transaction fees, miners verify and process transactions and provide network support.
The cost of energy to mine blocks plays a role in Bitcoin’s pricing. But recently, the network is becoming more and more energy-efficient. Hence, the rewards still exceed the cost to mine.
Ultimately, the market determines the price at which one buys or sells. Different cryptocurrency exchanges set their average prices based on the price that closes from the day’s ask and bid. Buying or selling impulses that are easily swayed in any direction depending on any current information on technological advancements, security issues, or the threat to its utility from complexities in the form of government regulation. Learn more about cryptocurrencies here!
You have just read through what you would need to know about what dictates the price of cryptocurrency, what dictates Bitcoin prices, and how that price is determined. Whether you want to trade or just someone slightly curious, don’t let fear hold you back from opportunity but let knowledge guide you and shed light on your path. Studying the market, employing informed strategies, and managing risk are critical.