Traditional financial systems and currencies the world over are criticized for a number of reasons. Being so integrated into the political, social, and economic systems, modern-day traditional currencies are prone to volatilities and changes.
You must have heard about how rising Inflation levels lead to a depreciation of the value of traditional currencies. With governments all over the world struggling to ensure economic feasibility, they are looking to pump as much or printed money into their systems.
This is leading to high levels of inflation the world over. Assets like Gold and Cryptocurrencies like Bitcoin are acting as hedges against rising inflation levels.
In this article, we will look at some factors, which contribute to determining the price of Bitcoins. We will also look at why Inflation is never an issue when it comes to Bitcoins prices and valuations.
List of Top 5 Factors that Determine the Price and Value of Bitcoin
The Market Factors: Supply and Demand
Bitcoin is a finite financial instrument, meaning it has limited circulation and ownership potential. Out of the 21 million, nearly 18 million have been mined. The workings are dictated by the logic of the market.
This is what makes Bitcoin such an attractive voice supporting the free market. It seeks to work according to the logic of the market, but is devoid of governmental control. Demand and supply dictate its prices and valuations.
Governmental Regulations and Control
Even though Bitcoins are inherently meant to be free instruments of finance, they are not free from governmental regulations entirely. This is because, exchanges, trading platforms, and people who trade them belong or are situated in certain geographical territories.
For example, if a country announces a blanket ban on them, the result is a global price drop of Bitcoins and other cryptos. On the contrary, if there are acceptance and legalization, then the same leads to a hike in valuation based on good news and results.
The Costs Incurred by the Mining Process
As you might already be familiar with, Bitcoin is created when high-powered computers and hardware and software are used to solve complex equations, leading to the birth of one block of Bitcoins. However, the rising costs of mining dictate the price of Bitcoins.
Miners are rewarded with Bitcoins. The number post the most recent halving in May 2020 is 6.25. Every four years, it reduces by half. The higher the costs of the mining (which will reach every year), the higher will be the Bitcoin prices.
The Circulation and Threats from Altcoins, Stablecoins, and CBDCs
Like any other financial asset, Bitcoin is subject to competing assets around it. If other Altcoins or Stablecoins start receiving more positive feedback from traders and investors, Bitcoins, demand will slowly go down.
In such an instance, people will start picking up other cryptocurrencies. Here again, it is the logic of the free market, which pits one crypto and one financial asset against the other. What is better will survive, what is weaker will perish.
The Role of Exchanges and Trading Platforms
The importance of a Crypto Exchange in the world of cryptocurrencies is similar to the importance of the New York Stock Exchange for the Dollar! How exchanges function can often dictate the kind of process and valuations of currencies.
If the Exchange feels like stopping the supply, then the demand might rise. On the other hand, if the exchange feels that the time is ripe for liquidity, then the prices will go down. Exchanges and trading platforms play a very prominent role in fixing Bitcoin prices.
The Bottom Line
Cryptocurrencies are part of our world and to that end are affected both directly and indirectly by several factors. Trading platforms like the Green Profit System, try to ensure that price fluctuations do not impact the users by helping with trends, projections, and other live-support functions.