What Determines the Price of One Bitcoin - How Cryptocurrency Rates are Defined

Introduction

Despite strong price volatility, Bitcoin (BTC) is now at an all-time high with a value in the tens of thousands of dollars. Due to its decentralized nature, the cryptocurrency is causing skepticism about its value among users and potential investors.

While some see Bitcoin as a huge economic bubble capable of bursting at any moment, others are pouring in millions to keep the ecosystem running. So, what determines the value of 1 Bitcoin? We are here to tell you how much it actually costs to produce a cryptocurrency and how its value is underpinned.

What determines Bitcoin’s price in the market?

Operating on a distributed ledger (blockchain), BTC entered the world in 2009 and is a digital currency for paying for goods and services online. Not yet globally accepted, crypto money does not exist in the physical world. There is only a blockchain that keeps a record of the transactions to prove the ownership. Here are some facts to better understand the nature of digital money:

There is no authority regulating crypto and determining its value. There is no central bank issuing tokens. Blockchain produces new tokens as a result of the creation of each new transaction block.
Here are a few factors affecting the Bitcoin price - demand, supply, availability, and the level of competition in the cryptocurrency market.
The total number of tokens in the network is limited to 21 million. The last token will be issued in 2140.

By buying 1 Bitcoin, you acquire ownership of that coin. Conversely, if you buy a block of shares, you gain ownership of the company. So, crypto does not have the attributes of a corporation. The pricing of Bitcoin is not the same as the pricing of stocks.

What is the Price of One Bitcoin?

Costs are influenced by current supply and demand, as well as the level of competition, regulation, and world events. It is based on the news that investors make strategic decisions. The value of crypto money fluctuates wildly, with an all-time high of around $69,000 per token in November 2021.

The real value of a virtual currency is determined by the cost of producing 1 coin (electricity consumed) and depends on the complexity of the algorithms being computed, mining equipment price and efficiency, and the current remuneration per transaction block created.

Better understanding of Bitcoin pricing

The value of national currencies (fiat money) is determined by well-known factors such as government monetary policy, current economic growth rates, and inflation (the depreciation of money in the face of negative economic or political processes). Not issued or backed by government authorities, BTC is not subject to the above factors. However, the value of 1 Bitcoin is determined by the following:

Supply. The laws of economics say that scarce assets are valued above readily available ones. The scarcity of BTC is due to a gradual decrease in the amount of remuneration paid to miners and a decrease in the speed of block-creation.
Demand. The popularity of digital tokens and the resulting increased demand for them is due to the ability to freely use cryptocurrencies for transactions where fiat money is inapplicable for a variety of reasons. The anonymity, decentralized nature, lack of regulation (no regulatory center) and low transaction costs are just some of the factors that make BTC so attractive to many.
Cost of production. The price of any asset is affected by its production cost, and cryptocurrency is no exception. The price of equipment and the costs of upgrading it, the electricity consumed and the slowdown in crypto-asset developments speed are factors to consider to answer the ‘how is Bitcoin production value related to its price’ question.
Competition. Before Ethereum and some other altcoins, BTC dominated the market in terms of exchange rate and capitalization. Thanks to the proliferation of altcoins, the situation has changed. In a few years, the capitalization of BTC in relation to the total capitalization of cryptocurrencies has dropped from 80% to 50%. A pioneer in the cryptocurrency world, BTC is benefiting from this competitive environment by continuing to attract huge investments.
Regulations. BTC remains a currency generally free from government interference. Cryptocurrency is still not ready for widespread adoption but its value will increase as it is granted legal status by states.

Another answer to the question of what determines the price of 1 Bitcoin is news, especially those related to regulations. From time to time, there are some developments and changes to blockchain operations that also affect the value of BTC.

Will Bitcoin’s Price Increase in the Future?

By now, miners have issued about 90% of the total crypto reserve. As supply decreases (issuance slows), the demand for digital assets will increase. These factors contribute to a further increase in the price of 1 Bitcoin. Additional drivers of BTC capitalization and exchange rate growth are large injections of funds by major companies and gradual adoption in many countries.

How Does Bitcoin Supply Affect Its Price?

By checking transactions and creating blocks, miners are rewarded, thereby ensuring new token introduction. At certain intervals, the remuneration is halved, thereby reducing the supply of BTC on the market. A decrease in supply leads to an increase in demand for the asset. The combination of lower issuance with increased demand for digital tokens and several other criteria has led to an increase in the value of Bitcoin.

How Does Bitcoin Make Money?

Owning tokens is like owning an asset with a price that changes over time. Investors make money on the difference between the buy and sell price. For example, if you buy 10 tokens at $20,000 and sell them at $30,000, you will make a profit of $100,000.

Bottom line

Although BTC has been around for more than 10 years, it is not yet a fully understood asset for investors and traders. There are many criteria to consider, including the nature of the network in which it operates, as any blockchain changes will also affect the token’s value.