in #bitcoin4 years ago



Why does Bitcoin have value and how is the price determined generally?

As more people get informed about the potentials of bitcoin and what many may have missed in the formative stages of digital assets. a growing number of people become aware of and interested in Bitcoin --especially when the price tends to increase-- we often get asked:

“Why exactly does Bitcoin exist for?”


Many people find it difficult to grasp how something which only exists digitally can have any intrinsic value at all.

Economics-Mathematics ECO 101
The answer to this question is rather simple and it lies in basic economics: scarcity, utility, supply and demand (Forces of Demand and Supply).

By definition, if something is both scarce and useful (utility) it must have an intrinsic value and demand a specific price, with all other things being equal.

Three major stuff are paramount in company.....1 Value created, 2. Essentiality of such value and 3. contending factors (traditional and contemporary competitors. meaning close substitute)

Take gold, for example. Why does gold cost as much as it does? Put simply, it is relatively expensive because it is rare, hard to find and limited in supply (scarcity). Gold also has some uses to which consumers derive satisfaction from (utility).

The combination of these two elements creates value by which price is determined based on the market’s supply and demand.

So what does this all have to do with Bitcoin?
Like gold, Bitcoin is also scarce: its supply is limited. There are currently just over 16.2m Bitcoin in circulation and the maximum that will ever exist is capped at 21 million. This set cap is well known, making its scarcity transparent.

However, to have value, Bitcoin must also be useful. Bitcoin creates utility in a number of ways.

Like gold, Bitcoin is perfectly fungible (one Bitcoin is similar to another), it is divisible (you can pay someone a small fraction of Bitcoin, should you want to) and easily verifiable (via the Blockchain).


Bitcoin is not just scarce, it also has utility
Bitcoin also has other desirable properties. It is secured, fast, borderless, decentralised and more democratic with the potential to change the financial world for better. Not only does it currently have value as a payment system, but also as an asset class (a store of wealth). It is also useful because it is built on open protocols, meaning, anyone can innovate on top of it and make the system better.

Although, we all need to understand one reality and fact that bitcoin is still at the infant stage finding its ways into the mainstreams economy. This most come with alots of turbulent, attack and stereotypes. But will become more clearer and better in the future

Bitcoin also has undeniable utility even when compared to other, newer cryptocurrencies. There is simply no other cryptocurrency that is as widely used and integrated at this point in time. Through network effects, we’re starting to see exponential growth, which creates value as more and more people start using Bitcoin and more merchants accepting it as a means of payment.

Today, there are already thousands of merchants around the world accepting Bitcoin as a means of payment, thus proving the growing usefulness of it. You also need to bear in mind that bitcoin or cryptocurrencies are alternative currencies for anyone who belief in them to make use of.

Take telecommunications, for example. When the first mobile telephone came out, it had very little value in that hardly anyone used it yet. However, as more and more people started using it, the usefulness grew exponentially. I am sure the easiest contact address of anyone now across the globe is their mobile numbers rather than their p o box.

The same is true for Bitcoin: the more people who start using and understanding it, the more useful it will become to everyone else.

How the price of Bitcoin is determined
The price of Bitcoin is not the same as its intrinsic value. Price is determined by the market in which it trades: by means of supply and demand (forces of Demand and Supply). This is the same way the price of many articles in the marketplace works.

Traders across the world on different exchange platforms can trade Bitcoin, which sets the specific price at a specific time for a specific market. Exchangers doesn’t set the price: the traders (buying and selling on exchange platforms) do.

Put simply, it is the ongoing interaction between buyers and sellers trading with each other that determines the specific price of Bitcoin (and everything else).

However, when determining price, one must also consider the amount that buyers are currently willing to pay for the future value of a specific item. In other words, if the market believes the price of something --like property, a certain stock or Bitcoin-- will increase in the future, they are more likely to pay more for it now like the case of bitcoin characteristics of being limited in supply to 21m max.
Some of the instances where Bitcoin currently has utility was mentioned above, but since Bitcoin is an evolving and improving technology, many are optimistic that there are many other use cases to come. Some, perhaps, that we haven’t even thought of yet.

Why does the price change so often?
This is called volatility and it’s not only Bitcoin exchange rate that seems to change from day to day. The price of many things, such as stocks, fiat currencies (dollars, Naira, Pounds, Rands), oil and many other products, can be quite volatile: moving up and down a lot against a base currency (such as the US dollar).

The total Bitcoin market is still relatively small when compared to other industries. It doesn't take significant amounts of money to move the market price up or down, thus the price of a Bitcoin is still somewhat volatile. Like FX markets is traded at Trillion Dollars while Bitcoin and other cryptocurrencies are traded at Billion dollars

That said, the volatility of Bitcoin has consistently been going down and it has become much more stable in recent times. but not until the recent time that it is deepen more and more. However, alots were jubilating last year Dec. 2017. as the price jumped to the roof.

How has the price of Bitcoin changed over time?
How Much was 1 Bitcoin Worth in 2009?
Bitcoin was not traded on any exchanges in 2009 but at a point around June was at $0.0001. Its first recorded price was in 2010. Technically, Bitcoin was worth $0 in 2009 during its very first year of existence!

How Much was 1 Bitcoin Worth in 2010?
Bitcoin's price never topped $1 in 2010! Its highest price for the year was just $0.39!

What Determines Bitcoin's Price?
Bitcoin’s price is measured against fiat currency, such as American Dollars (BTCUSD), Chinese Yuan (BTCCNY) or Euro (BTCEUR). Bitcoin therefore appears superficially similar to any symbol traded on foreign exchange markets.

Unlike fiat currencies however, there is no official Bitcoin price; only various averages based on price feeds from global exchanges. Bitcoin Average and CoinDesk are two such indices reporting the average price. It’s normal for Bitcoin to trade on any single exchange at a price slightly different to the average.

But discrepancies aside, what factors determine Bitcoin’s price?

Supply and Demand
The general answer to “why this price?” like I mentioned earlier is “supply and demand.” Price discovery occurs at the meeting point between demand from buyers and supply of sellers. Adapting this model to Bitcoin, it’s clear that the majority of supply is controlled by early adopters and miners.

Inspired by the rarity of gold, Bitcoin was designed to have a fixed supply of 21 million coins, about 82.82% of which have already been produced check

Several early adopters were wise or fortunate enough to earn, buy or mine vast quantities of Bitcoin before it held significant value. The most famous of these is Bitcoin’s creator, Satoshi Nakomoto. Satoshi is thought to hold one million bitcoins or roughly 4.75% of the total supply (of 21 million). If Satoshi were to dump these coins on the market, the ensuing supply glut would collapse the price. The same holds true for any major holder. However, any rational individual seeking to maximise their returns would distribute their sales over time, so as to minimize price impact.

Global Genuine Miners currently produce around 1,800 bitcoins per day, some portion of which they sell to cover electricity and other business expenses. The daily power cost of all mining is estimated over $1,000,000. Dividing that total by the current BTCUSD price provides an approximation of the minimum number of bitcoins which miners supply to markets daily.

With the current mining reward of 12.5 BTC per block solution in 10mins, Bitcoin supply is inflating at around 4% annually. This rate will drop sharply in 2020 to 50% of the present daily volume, when the next reward halving occurs. That Bitcoin’s price is rising despite such high inflation (and that it rose in the past when the reward was 50 BTC!) indicates extremely strong demand. Every day, buyers absorb the thousands of coins offered by miners and other sellers.

A common way to gauge demand from new entrants to the market is to monitor Google trends data (from 2011 to the present) for the search term “Bitcoin.” Such a reflection of public interest tends to correlate strongly with price. High levels of public interest may exaggerate price action; media reports of rising Bitcoin prices draw in greedy, uninformed speculators, creating a feedback loop. This typically leads to a bubble shortly followed by a crash. Bitcoin has experienced at least several such cycles like are experiencing now and will likely experience more in future.

all time price of BTC

So, there you have it. In a nutshell: if something is both useful and scarce, it will demand value and a price. Bitcoin is both useful and scarce, so it has a value and a price, determined by supply and demand. And remember that the value of Bitcoin and the price of Bitcoin are not synonymous.

Market Manipulation
No discussion of Bitcoin’s price would be complete without a mention of the role market manipulation plays in adding to price volatility. Just like what we are experiencing now bitcoin community. At that time, Bitcoin’s all-time high above $1000 was partly driven by an automated trading algorithms, or “bots,” running on the Mt. Gox exchange. All evidence suggests that these bots were operating fraudulently under the direction of exchange operator, Mark Karpeles, bidding up the price with phantom funds.

Mt. Gox was the major Bitcoin exchange at the time and the undisputed market leader. Nowadays there are many large exchanges, so a single exchange going bad would not have such an outsize effect on price.

Major market manipulators now are greedy early adopters of bitcoin and established institutions who missed out of the major shares of the volume could pump in money and also embark on major sell off to crash the price in order to launch their own crypto or blockchain based outlets and hold major share from low price before the next bull run.

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Comrade Medayese Felix


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