Bitcoin, the enigmatic and most popular cryptocurrency, has received a lot of attention since it was launched in 2009. Although this coin has gained a lot of recognition and acceptance globally, it is still very risky to invest in it due to its volatility. If you are thinking of investing in Bitcoin, then it is crucial to understand the factors that affect Bitcoin’s value to guide you. When you have a proper understanding of why the price of this token is extremely volatile, you will know what to expect in the market based on different variables and make more informed choices.
Top 6 factors that affect Bitcoin’s value
Listed below are the top 6 factors that affect Bitcoin’s value in the crypto market:
1. Supply and demand
Just like other kinds of assets, the value of Bitcoin is determined by its supply and demand in the crypto market. Generally, the supply of any asset plays a very important role in determining its price in the market. A scarce asset is more likely to have very high prices, however, an asset that is available in excess will have very low prices.
For instance, Bitcoin has a fixed supply of just 21 million Bitcoins. This means that its protocol only permits new bitcoins to be rewarded to miners at a limited rate and that this rate has been specially designed to decrease over time. Hence, the future supply of Bitcoin is dwindling, which increases its demand in the market. This implies that shrinkage in the supply of Bitcoin in the future has made it increase in demand. Consequently, the increase in demand has fueled the hike in Bitcoin’s price.
2. Cost of production
New crypto tokens are generated through a process known as “mining”. Mining simply involves miners using a powerful computer to verify the subsequent block on the blockchain. The more competitive it is to mine a particular cryptocurrency, the harder it is to mine because. This is because usually, miners have to compete to solve a very complex math problem in order for them to verify a block.
For Bitcoin, the cost of production (mining) is approximately equal to the sum of the direct fixed costs for the infrastructure (computers), the electricity needed to mine the tokens, and the difficulty level of the mathematical problem that needs to be solved.
In monetary terms, Bitcoin miners have to purchase many costly mining machines with high speed. Also, the bitcoin-mining process needs very costly electricity bills. All of these make the price of Bitcoin very expensive.
3. Cryptocurrency exchanges
Most cryptocurrency exchanges prefer to list only the most popular tokens and mainstream cryptocurrencies for trading and investment on their platforms and since Bitcoin is the most popular cryptocurrency in the world, it will definitely be listed on most exchanges. An example of a top exchange is Bitmama.
Generally, if a cryptocurrency is listed on numerous exchanges, it is likely to increase the number of investors ready to purchase it. In turn, this hikes its demand in the market and overall price. So since Bitcoin is listed on most exchanges, its value will continue to be sustained.
You should check this out: How to use AI for crypto investing in 2024
4. Competition
Currently, there are more than 13,000 different kinds of cryptocurrencies, with newer ones getting launched as the day goes by. Fortunately, some of these tokens have been successful and also gained a lot of attention from crypto investors, which has created alternatives to Bitcoin investment.
Although some of these new tokens in the market have withdrawn a lot of investment from the Bitcoin ecosystem, this competition has also attracted a lot of investors to Bitcoin. For this reason, the overall demand and awareness about the crypto space have increased. As the first and the most popular token in the crypto space, Bitcoin has greatly benefited from this attention, and its price and value have remained very high.
5. Regulations
Regulations are laws set by the government to govern how cryptocurrency trades. This can greatly impact the value of Bitcoin either positively or negatively. Crackdowns on crypto exchanges or declaration of outright bans on Bitcoin (or any other crypto) can scare investors, which may lead to sharp selloffs. When there are sharp selloffs in the market due to unfavorable government regulations, the value of Bitcoin will be negatively affected.
Contrarily, regulatory clarity and wide acceptance of these digital coins can boost the confidence of investors and attract institutional involvement, hiking demand. As you already know, when demand increases, the value of the coin will also increase.
6. Social media hype
Just like every other cryptocurrency, Bitcoin thrives on media hype and attention, whether positive or negative. Alluring headlines praising Bitcoin’s record-breaking prices can activate FOMO (fear of missing out). This, in turn, draws in new investors and inflates the price of this token.
Contrarily, negative press news publicizing Bitcoin’s scams, hacks, or even environmental concerns may trigger panic selling, which will send the price plummeting. You should always consider what the media is saying about this token as “hype” is one of the factors that affect Bitcoin’s value.
Are Bitcoins a good investment?
Since Bitcoin is a cryptocurrency and cryptocurrencies generally have volatile prices, there are no guarantees of the outcome. So there is no direct answer to whether Bitcoin is a good or bad investment. Nonetheless, if you think Bitcoin is a good investment, you must be willing to accept that your returns are not guaranteed due to the volatility of the crypto market.
What Is Bitcoin’s current stock price?
There isn’t a Bitcoin stock, but you can purchase shares of companies that invest in blockchain technology or cryptocurrency.
Are Bitcoins illegal?
Although Bitcoins have been duly recognized as a form of currency in numerous countries across the world, only two countries deem them legal tender – El Salvador and the Central African Republic (CAR). However, outright bans of Bitcoin exist in China, Bangladesh, Algeria, Egypt, Saudi Arabia Iraq, Morocco, Qatar, Nepal, and Tunisia.
Is It worth buying Bitcoin?
Yes, it is worth buying Bitcoin, as many people consider it to be a very good investment because of its high potential for growth and long-term value. However, note that investing in Bitcoin also comes with great risks because of its volatility. It is very important to only invest money that you are comfortable with losing.
We covered how to buy this trending stable coin: How to buy PYUSD in Africa
How to buy Bitcoin
Bitmama offers the best exchange platform to purchase Bitcoin via instant order or P2P. Follow the steps below to buy Bitcoin on Bitmama:
1. Download the Bitmama app for Android or iOS, register, and log in.
2. Navigate to the verification page in your ”Account” section. Click on the verification button to submit the necessary documents and verify your account up to level 3.
3. Fund your fiat wallet by clicking on fund on the home dashboard
4. Select “Fund with Bank Transfer” and follow the prompts till completion.
5. Return to your dashboard and select “Buy”.
6. Select your preferred cryptocurrency and fill in the amount you wish to purchase. The cost will automatically be filled out. Note that you need to fill in a sum lower than the balance in your fiat wallet.
7. Click on Buy and follow the prompts till completion.
Buying Bitcoin via Bitmama P2P
You can also purchase Bitcoin via P2P by navigating to our Peer to Peer market. From your home page in step 5 (instead of “Buy”).
Due to the volatility of the crypto market, the value of Bitcoin or any other cryptocurrency is likely to fluctuate with time. Hence, you should study and get a good understanding of factors that affect Bitcoin value so you know what to expect as a Bitcoin investor in the crypto market. Nonetheless, even though these factors provide you with valuable insights, you should still remember that nothing is guaranteed as volatility can be very brutal and unpredictable.
Therefore, it’s best to discuss with a finance and investment expert about your distinctive situation before you invest in Bitcoin. Lastly, only invest an amount of money that you can afford to lose.
Bitmama offers a secure marketplace for crypto enthusiasts. Perform activities like crypto trading, and creating virtual dollar cards for online payment. Get started today by downloading the Bitmama app.
