How is the Price of Bitcoin Determined? Understand the Calculation

The value of Bitcoin refers to “volatility”. This is perhaps one of the most spoken words in the market. cryptocurrencies. Many people have difficulty understanding how the Bitcoin price works. Also, the abrupt changes – whether up or down – tend to scare newbies. After all, what determines the value of Bitcoin?

Simply put, the price of Bitcoin is set by offer and demand. The crypto asset is traded on platforms such as exchanges. And these trades set the prices. However, Bitcoin has been priced very close to zero for much of its history. Here is a graph showing the evolution in BTC price so far:

Bitcoin was launched in January 2009. It was almost ten months until, in October of that year, the exchange New Liberty Standard registered the first negotiation. At the time, 5,050 Bitcoins were negotiated at US$ 5.02which was about 1,006 Bitcoins for every $1.

However, the story about BTC’s price is not the focus of this text. Instead, we will analyze what factors influence the price of Bitcoin currently. And these factors range from economic aspects to factors of the crypto market itself. Let’s look at them.

Bitcoin Value and Price

As we have seen, the Bitcoin price today is formed by a complex range of factors. The impact of the dollar, government policies, technology and classic supply and demand are some of them. To differentiate this, in this text we will deal with two aspects of Bitcoin: price and value.

As one of the investor’s famous phrases says Warren Buffett: “price is what you pay, value is what you get.” However, while the value is something subjective (each person assigns value differently), the price is more objective. That way, features that increase the value of BTC influence its price.

• Supply and demand;
• Bitcoin scarcity;
• Retail acceptance of Bitcoin;
• More long-term investors;
• Variation in the price of Bitcoin and the dollar;
• Bitcoin’s entry into other markets;
• Monetary policies of central banks.

Supply and demand

As we saw at the beginning of the text, the offer and demand are the main factors that determine the price of Bitcoin. This extends to several other assets, including. This supply and demand usually vary between trading platforms (exchanges), which have different volumes. That’s why we usually see Bitcoin being traded at different prices on each exchange.

Bitcoin Scarcity

In terms of supply and demand, the shortage matches the supply. In the case of Bitcoin, the demand is already predefinedas there will be at most 21 million units. And unlike fiat currencies, new Bitcoins cannot be printed beyond this quantity. Scarcity is also very important for assets such as gold, for example.

Since Bitcoin cannot be “printed” by governments, its demand is likely to increase, but supply will not grow at the same pace. Several investors are already using the crypto asset as a store of value, protection or investment with growth potential. And with the supply of new Bitcoins falling, with their demand rising, this brings impacts in the price.

Retail Bitcoin Value

Today, Bitcoin is widely used as a hedge asset, store of value or for speculative gains. However, it was originally conceived as a payment system and transfer of values. And to be successful, a payment system needs to have acceptance between people in the day-to-day.

As more people see its value, Bitcoin is becoming seen as a good means of payment. It does not have borders nor control of any governmentnor is it subject to taxes. And the more people see these advantages, the greater the use of Bitcoin as a currency.

More long-term investors

You long term investors (nicknamed HODLers in the Bitcoin market) also contribute to the price. These investors usually have a long-term mindset. Therefore, they buy and hold Bitcoins, decreasing the supply of the market. They leave fewer Bitcoins to be traded when they buy.

Likewise, they pour many Bitcoins when they decide sell. And as the HODLers usually have a high capitalthe impact on the price of Bitcoin tends to be strong. That is why the movements of these investors – who are also known as whales – usually precede big high or falls in the price.

Variation in Bitcoin price and dollar price

THE Bitcoin quote in the international market is priced at dollars (USD). However, each country has its own currency. And the relationship between the local currency quote and the dollar also influences the price of Bitcoin.

Let’s take Brazil as an example. Imagine that, today, Bitcoin is quoted at US$ 10 thousand and the dollar costs R$ 5.00. That would give one Bitcoin to R$ 50 thousand. However, if the dollar rises to R$ 5.20the price of Bitcoin will have increased to R$ 52 thousand, even though the dollar price has remained stable in the US$ 10 thousand. Therefore, the exchange rate of the US currency can influence the price of the crypto asset in the local market.

Bitcoin Value in Other Markets

You may have read about some cryptocurrency whose price skyrocketed after having been listed in a exchange. This is quite common among altcoinsespecially when they are listed on large platforms. Cryptocurrencies that are included on platforms such as Coinbase, Binance and others start to have a series of benefits. Among them are: greater liquidity in negotiations, interest from more investors, and others.

In the case of Bitcoin, the impacts of this are smaller. After all, the main exchanges already list the crypto asset. But there are other markets that can influence the price. For example, one of the largest investment funds of the world to start investing in Bitcoin. Or a big company who buys the crypto asset as a way of protection to your cashier.

At a lesser level, until the entry of ordinary citizens can influence the price of BTC. If people in a country start looking for the cryptocurrency, its price may increase in the local market. Again, the law of supply and demand acts to influence the price in the market.

Monetary policies of central banks

The market and the monetary policies also affect the price of Bitcoin. When the central banks emit more moneyeach unit of that money loses value. With this, the phenomenon of inflation begins to appear. It can come in milder forms (as in Brazil and the USA) or in more severe forms (as in Venezuela and Argentina).

From the moment money loses value, the population begins to repudiate it. And then begins the search for goods like real estate, gold and currently the Bitcoin. With more money in the market, investors have more capital to seek investments. And since Bitcoin is scarce, this increase in demand tends to make the price increase significantly.

Bitcoin Price Today

Follow the Bitcoin quote is a simpler task today. There are several websites that show real-time charts with the price. Sites like CoinMarketCap and the TradingView allow you to track the price in major markets and currencies. Generally, the price of Bitcoin is calculated based on the movement between the world’s main exchanges.

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