How can you determine a market value of a Bitcoin if it appreciates faster than the shares of most hot technology stocks? This is a question that keeps befuddling analysts and investors for many years now. Even though the methods used to value digital currencies are a bit straightforward, the underlying assumptions that bring the competing valuations tend to vary widely. You shouldn’t rely on the analysts to think on your behalf. It’s better to consider a framework and determine your own Bitcoin’s market value estimate.
Bitcoin’s value is measured against currencies like American Dollars, Euro or Chinese Yuan. This makes the Bitcoin appear superficially and more similar to the symbols traded on the foreign exchange markets. Unlike these fiat currencies I have mentioned, there is no an official Bitcoin price. It value is determined using the numerous averages that use the global exchanges price feeds. It is very usual to find that Bitcoin is trading on a single exchange at prices that differ to the average slightly.
Let’s put all these discrepancies aside and discuss some of the factors that determine the Bitcoin’s price.
Demand and Supply
The demand and supply assist a lot in determining the price of almost every product in the market. The price discovery usually occurs at the point where the supply of sellers and demand from buyers meet. When the same model is adapted to Bitcoin, you will realize that the supply is controlled largely by miners and early adopters.
From the beginning, Bitcoin was designed to always have a twenty-one million fixed supply of coins. Over half of the coins have been produced already. There are several early adopters who were fortunate or let’s say wise enough to buy, earn or mine enormous quantities of Bitcoin even before it had any significant value. An example of such a
creator is Satoshi Nakamoto who is thought to have over one million Bitcoins. In case he was to choose to dump them in the market, the supply can collapse the price. This applies to any other major Bitcoin holder.
Currently, miners produce an approximate of 3600 Bitcoin’s each day. But some of the portion is sold to cover the business expenses. Since the mining power cost is estimated at $500,000 each day; you can divide that by the current Bitcoin-USD price to approximate amount of Bitcoins miners release to the markets every day.
Bitcoin supply inflates at approximately 6.25 percent on an annual basis considering the current mining reward. The rate is meant to drop sharply this year during the next reward halving. Its price keeps increasing despite the high inflation. This clearly indicates that Bitcoin is really in high demand. Buyers keep absorbing the thousands of coins miners, and other sellers provide.
One recent blockade instance occurred when VISA and MasterCard blacklisted a Craigslist-style site, Backpage.com that lists adult services. The livelihood of such adult service providers relies on the advertising and the payments are made using Bitcoin. Such instances keep shining more light on the value of Bitcoin. The media controversy
on darknet markets also brings Bitcoin to most people who would not have come across it.
Crises in Fiat Currencies
People now know that a Bitcoin wallet is a lot safer than having a bank account. Most of realized this the hard way in early 2013 when the confiscation of their savings was done. This caused a price surge because savers rethought the risks of saving their money in banks versus Bitcoin.
Market manipulation plays a great role in adding the price volatility. For instance, Bitcoin’s high above a thousand US dollars was driven partly by automated trading logarithms that run on Mt.Gox exchange. The evidence showed that the trading logarithms were operating under exchange operators fraudulently. At that time, Mt.Gox was the
undisputed market leader. Today, there are various large exchanges and that’s why even if a single exchange went wrong, an outsize price effect wouldn’t happen again.
The value of Bitcoin is worth what people choose to buy and sell it for on the market. Usually, it is often a matter of human psychology rather than an economic calculation. A person should not let their emotions dictate their actions in a market. It’s better to come up with a price determining strategy and then stick to it.
Those who would like to accumulate Bitcoin should consider setting aside an affordable, fixed sum each month to purchase Bitcoins, however much they cost. This strategy will let you accumulate more Bitcoins at an average price and one will not get stressed trying to predict the wild Bitcoin price gyrations that keep happening almost every time. There are two basic assumptions you have to make to determine your own Bitcoin’s market value: your adjusted risk-return rate and its monetary base in the future.