Bitcoin, the world’s first and largest cryptocurrency, is slowly becoming an integral part of the economy. Perhaps this can be attributed to its worldwide reach. For the same reason, it has become impossible for the value of Bitcoin to be regulated by any firm, organization or government. Just like every other currency, the value of this cryptocurrency depends on various factors. Any fluctuation in the value of one of the factors directly impacts the value of Bitcoin.
Currently, the value of Bitcoin is determined in terms of its exchange rate with other currencies around the world.
Major factors responsible for the variation in the value of Bitcoin include:
The government of any country plays a vital role in the variation of cryptocurrency values. Any modifications in the government policies regarding the currency create an impact on it. Even if the policies do not target Bitcoin, its value will reflect the effects.
If a government imposes restrictions on the use of Bitcoins, the prices fluctuate drastically. However, the currency doesn’t reflect and implement the changes much because of its anonymity. Therefore, in many countries, there has been a demand for commissioning of a body which would supervise the Bitcoin exchange. If implemented in the near future, it too will have a major effect on the value of the currency.
Due to the media’s direct influence on the public, the value of Bitcoin is largely dependent on it. The prices may shoot up due to a rumour or hype about Bitcoin and can hit the rock bottom in cases of a negative hype. For example, news about bankruptcy and fraud due to Bitcoin theft can cause panic and confusion amongst the general public, which then has the potential of causing currency values to dip. On the other hand, positive news and benefits of using cryptocurrency can bring a surge in its value.
More and more people get to know the currency and its usage, so the prices tend to increase. Large firms, online payment gateways and even food chains accepting and promoting the use of Bitcoins results in an increase in its value.
Recently, the famous food chain KFC has announced a new range of chicken bucket on its menu that is only available using Bitcoins. Such practices play an important role in determining the value of the cryptocurrency.
Many times, traders practice activities that create a bubble in the market, giving an illusion of a rise in the Bitcoin value. In the real sense, however, they are simply bulk buying Bitcoins with the intention of dropping the currency in the future to garner huge profits. Such practices and trends tend to disturb the value of currency temporarily.
The more robust a currency is to external variations, the more chances of increase in its value. People at the time of investing make sure to invest in schemes that they prevent the loss of their money. Thus, the more strong and profitable the Bitcoin network is, the higher its value will be. Despite the widespread use of Bitcoin, it is still perceived as a bubble as it does not possess any inherent value of its own; instead, it is only exchangeable with other currencies. This eventually affects the value of not only the Bitcoins but of other cryptocurrencies as well.
Supply and Demand
The higher the demand for Bitcoin as opposed to its supply, the greater its value. Due to the speculation that Bitcoin supply must never exceed 21 million, it is assumed that its prices are going to increase in the near future.