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What gives a bitcoin value

what gives a bitcoin value

The value of bitcoin is determined by the same market forces that influence the value of any other goods or services. If more people want to buy. Bitcoins have value for the same reason the US dollar does – it's a useful form of money that's used by people to buy and sell things. While the US dollar's. Bitcoin's price is primarily affected by. LEVEL II DIRECT ACCESS TRADING FOREX

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What Gives Cryptocurrency Value and How Does it Gain Value?

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what gives a bitcoin value


Since it was a lot easier to trade these notes, rather than carrying around physical gold, this soon became the standard in the western world. The problems began when governments started to abolish this gold standard and replace the gold-backed notes with their own banknotes that were not backed by anything, also known as fiat currency.

Suddenly, money was not scarce anymore, as the governments were able to print as much money as they liked, thus diminishing the value of every other banknote in circulation. The only thing that kept fiat money valuable was again trust, which was however forcibly established through the state. People knew that they could redeem their money for the goods and services produced by a national economy, as it was mandatory to accept this form of legal tender.

In times when the economy produced more goods and services, the value of the currency rose, as there was still the same quantity of money in circulation, but more things to buy on the market. What happened far more frequently however, was that governments and central banks kept increasing the money supply. With every new note that was put into circulation, the trust people had in the currency went down and subsequently, the value of the currency plummeted.

In the wake of the crisis, an unknown person, or a group of people that went by the pseudonym Satoshi Nakamoto, invented Bitcoin, as a decentralized peer to peer currency that runs without any central middlemen, such as banks or governments. There will never be more than 21 million Bitcoins in circulation, thus ensuring scarcity. Like with all assets and commodities, Bitcoin is valuable because other people are willing to pay for a Bitcoin and the more people put their trust in Bitcoin, the more valuable it becomes.

It is fungible, durable, resistant to counterfeiting, and above all, scarce. The only difference is that Bitcoin is not traded at a physical location, but an online exchange. Traders who want to buy Bitcoin post the maximum price they are willing to buy at to the exchange, while sellers post the minimum price they are willing to accept.

If there already is a matching offer, the exchange carries out the trade at the price the counterparty has quoted. If more people want to buy and hold Bitcoin, its value rises. If people are selling off their holdings, the price drops. At any time, the value of one Bitcoin is exactly what other people are willing to pay for it. The exchange first checks if there already is someone who wants to sell at this price and instantly carries out the trade, if this is the case.

Every year on May 22nd, the crypto community celebrates Bitcoin Pizza Day. Over time, the price has appreciated, as the amount of Bitcoins mined were not able to satisfy the demand for the currency. The sentiment is not tied to a metric like sales or supply and is a more emotive force.

Supply driven price action Another larger cause of price movement in bitcoin is the supply of coins hitting the market, every four or so years, the supply of bitcoin created by mining is cut in half. Miners are responsible for bringing new supply to the market; depending on how healthy their operation is, they need to sell less bitcoin to remain in operation and therefore starve the market of new supply.

In many cases, especially in the earlier years, the value of bitcoin is tracked more like a collectable than stock. As it matured, it started to have more correlation to the stock market, but bitcoin is not a stock. The price of Bitcoin does not track based on any predictable data.

It moves up or down based on how people feel about the market at any given time. When buyers outnumber sellers, the price goes up. Investors, influencers and celebrities have the ability to move the price of bitcoin not because they affect the network but affect the thinking of people who trade bitcoin.

Bitcoin, like many financial products items, can be manipulated; this can be done through something known as spoofing, where trades are placed on the order book with the intention to either sell or to buy bitcoin. When other traders see these large trades, these other traders can panic and either buy or sell, and once the price reaches close to those large orders, those orders are removed from the order book. These practices then tend to move to smaller cryptocurrencies simply because of the lack of liquidity and the ease of moving those markets.

Leveraged bets on top of bitcoin In addition to the spot market, there are also side markets for traders to get more exposure to bitcoin. These are known as leverage traders ; in this case, traders take on more risk and borrow bitcoin to buy or sell in the market to try and make larger profits.

If the underlying market goes against their thesis, it can force these traders to sell and close out positions or get liquidated, putting further selling pressure on the market and driving prices down even lower. The opposite is also true in a positive run, as people borrow more bitcoin to go long on the trade, taking more supply off the market to lock up for these trades, making it more scarce and pushing the prices up even more.

The world is trying to price a new asset class Bitcoin is a completely new paradigm for all market participants; very few know what it is, how it will be used in the future, how big the market will be as people around the world adopt it, what markets it will disrupt and to what extent or how governments react to it.

Considering all the unknowns is what investors have to wrestle with, and as new information presents itself, investors, both institutional and retail, change their allocation. As information is not evenly distributed, some pay attention. Still, it does offer an investment opportunity for those willing to consider it as part of their portfolio. When you trade into bitcoin, you leave the faux safety or instead stability of fiat currency and deal with volatility. It can be an opportunity, but it can also be a test of your conviction or belief in the other properties of bitcoin.

It is up to you to decide how valuable you feel bitcoin is in terms of having an asset that is globally recognised, censorship-resistant, with a known monetary policy. Donate Disclaimer: This article should not be taken as, and is not intended to provide any investment advice. It is for educational and entertainment purposes only. As of the time posting, the writers may or may not have holdings in some of the coins or tokens they cover.

Please conduct your own thorough research before investing in any cryptocurrency, as all investments contain risk.

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