Anyone who is thinking about trading Bitcoin should take the time to learn a bit about the technology and how it works. Having a deeper understanding of Bitcoin’s underlying mechanics will help you better understand the movements of the market.
Trading in multiple cryptocurrencies enables you to hedge your bets and protect your crypto from a potential price crash. Understanding why Bitcoin has value and the factors affecting its price allows you to understand other cryptocurrencies as well.
Scarcity
The value of anything is tied to its scarcity; the less of something there is, the more it is worth. In the case of Bitcoin, the supply of tokens is capped. New Bitcoins are created or found, through a process called mining. The network controls the rate at which miners find new coins by altering the mining process’s difficulty.
The total number of Bitcoins on the network can never exceed 21 million. If current trends persist, the network will add its 19 millionth coin in 2022. This artificial scarcity is a different approach to that used with fiat currencies. However, the effect is the same. Controlling the supply of Bitcoin ensures that the market doesn’t become saturated.
Divisibility
A single dollar can be broken down into 100 cents. $1 = 0.01 cents. A Bitcoin can be broken down into units called Satoshis. A Satoshi is equal to 0.00000001 Bitcoin.
Because each Bitcoin breaks down into so many Satoshis, we don’t need as many of them as we would with physical currency. Even if a single Bitcoin’s value reaches unprecedented levels, users can still transact with small fractions of a single coin. This divisibility is why Bitcoin’s creators could set the limit they did for the total number of Bitcoins in existence.
Utility
Its utility directly influences Bitcoin’s value. Right now, most people who are buying Bitcoin are speculating. In other words, they are buying it in the hope that it will increase in value. But there are also people buying Bitcoin to use it as a digital currency. It is also becoming increasingly easy for people who want to use Bitcoin as a fiat currency.
There are a growing number of pre-paid cards and debit cards you can buy that can be loaded with Bitcoin. By using some creative workarounds, these cards can provide Bitcoin payments on any card terminal that accepts regular debit cards.
There are also Bitcoin ATMs in many major cities. These ATMs enable users to buy Bitcoin and instantly sell Bitcoin for cash.
As the infrastructure needed to use cryptocurrencies like regular money becomes more commonplace, the rate of people taking it up should also increase, along with its value. There is still a long way to go in enabling people to use cryptocurrencies seamlessly, and many people argue that Bitcoin specifically will never replace fiat. But the link between Bitcoin’s utility and its value is undeniable.
Mining
Mining is the process by which new Bitcoins are made, and the network is maintained. Miners solve complex math problems to find new coins, using computing power and electricity in the process. When new coins are mined, they are divided amongst all the miners that contributed computing power. If the value of Bitcoin dips below the cost of the electricity needed to mine new coins, miners will turn their rigs off, and production will slow.
Tracking the Price Over Time
If all you know about Bitcoin is what you have heard from the media, you probably know that the prices can fluctuate wildly. There’s more to the Bitcoin price than just what we have outlined above. The most significant and least predictable factor is the behavior of the market. Individual traders with sufficiently large portfolios can disrupt the entire market by moving substantial volumes of Bitcoin in a short space of time.
You can find the latest BTC street price online using Chaingers.io. Changers.io shows you an up to date BTC street price and provides a free online calculator so you can work out how much to sell your Bitcoin for. As with any kind of asset whose value varies over time, it is up to you whether you sell when your Bitcoin is up or wait to see if the value will rise further. Remember that Bitcoin’s value can soar or crash in an instant.
These are just some of the things that affect the value of Bitcoin. Cryptocurrencies are complicated. It takes time to learn how they work, let alone the market itself. Right now, Bitcoin is not quite a digital currency. It can be used as one, but that is not yet its primary function. Because of this, the factors that affect Bitcoin’s prices are more like those that affect assets rather than currencies. If you are buying Bitcoin in the expectation that its value increases with time, be careful. Its value will almost definitely go up again, but it will also crash just as hard.