Bitcoin’s Value: What affects the first cryptocurrency’s price? [Top 3 Factors]

Decentralised digital money, Bitcoin's value mostly comes from the exchanges where it is traded. However, there are other factors at play that might push the value of Bitcoin to new heights and then bring it down at the same time.

Since its conception in 2009, Bitcoin's value has increased precipitously. Since its inception, the value of one bitcoin has fluctuated between zero and one-hundred-thousandth of one cent, but it has now reached a current value of roughly $37,000.

One Bitcoin's price decreased to $4,000 or less on certain markets in March 2020. Massive government stimulus initiatives and increased adoption by enterprises and huge institutional investors accelerated the price's rise to over $40,000 in less than a year.

Factors that Influence the Price of Bitcoin

"How is Bitcoin's price determined?" is a question that can't be answered straightforwardly. In contrast to commodities like oil or gold, Bitcoin does not have a single price due to its decentralisation.

Bitcoin is a decentralised digital commodity that has enabled it to find a price mostly set by the total of buy and sell orders across different exchanges.

Bitcoin is traded on a variety of exchanges at any one time. To arrive at a price, buyers and sellers must agree on a price at which deals will be settled. Bitcoin's price is set by "the market," as the saying goes.

A single value may be derived using indexing services such as Coindesk, Coinmarketcap, Messari, and others, which collect data from various sources and estimate an average.

However, several external variables might affect the price people are prepared to pay for the currency. To answer the question, "How is Bitcoin valued?" the following factors might be considered:

Sentiment

 Any asset's current and future price movement may influence the overall market mood. The cycle of this tends to repeat itself. The market mood is also an indicator that traders consider before deciding on their crypto holdings.

By engaging in the wide array of reliable information published on trusted platforms and services like Binance, Kraken, and Bitcoin Loophole, new and experienced traders alike can attempt to understand the nitty-gritty of the crypto industry better altogether.

When more and more individuals get progressively positive about something, the price rises until everyone believes it will never go down again. Things begin to alter at that moment, and people's moods move in the other direction. When the general public believes that prices will never rise again, it is a sign that the market has reached a low point.

Because of this, CNN maintains a "Fear and Greed Index." The index uses seven broad indices to evaluate mood in the financial markets at large. Stock volatility, call-to-put ratios, and the ratio of stocks hitting new highs to stocks making new lows are some of the metrics used by these indicators.

The price of Bitcoin tends to rise when news of increased acceptance or new money enters the asset class. As you can see from the samples below, the price of Bitcoin has performed well in 2020 and 2021.

Amount of Money on Hand

According to some, the expansion of the money supply is the most important element influencing Bitcoin's price. Whenever central banks issue additional money, the price of Bitcoin tends to climb roughly to the quantity of new currency generated.

This is a component of Bitcoin's supply-and-demand equation. An ever-shrinking amount of bitcoin is being chased by an ever-growing number of dollars. As the fiat money supply increases, the bitcoin supply decreases by half every four years (a process known as Bitcoin halving).

The Network Effect

 Some argue that Bitcoin's fundamental worth is found in its network. The number of Bitcoin users, in other words:

Social media networks might serve as a good comparison. When it comes to social networks, we look at how many people use them and how engaged they are. At least half of Instagram's users check in daily, which rivals Facebook's overall user base and engagement. For the most part, this is why people believe that these networks are worthwhile.

As long as more people use Bitcoin, the value of the digital currency might rise as more individuals buy it, keep it, and use it. A positive feedback loop might form as the price of Bitcoin climbs.

Final thoughts

No one factor can be identified as the primary influencer on the price of Bitcoin. While news and mood may be found in the financial sector, elements like mining and the network effect are exclusive to cryptocurrencies.

If you want to learn more about crypto before investing, it's good to go further into some of the above principles.