Perhaps, you’ve registered with several crypto exchanges and realized that their Bitcoin prices vary. Well, some people argue that speculation is the only factor that determines Bitcoin value. On the contrary, several fundamentals determine this virtual currency’s value too. Several fundamentals can give this virtual currency a fair price.
Summary of factors that dictate Bitcoin’s value
Like other cryptocurrencies, Bitcoin value at any given time depends on several factors. Prominent among them include:
- Transaction speed
- Amount of transactions per day
- Transaction cost
- Mining cost
- Current and potential market cap
- Volume and price trends
But even with the influence of these factors, crypto exchange speculation gives Bitcoin its value. That’s why Bitcoin’s price on bitcoin up can be different from that of another platform. Notably, Bitcoin news and mining costs determine the value of this digital currency.
Bitcoin mining cost
Some people argue that Bitcoin’s mining cost is its fair value. However, Bitcoin mining difficulty increases as more people try to mine some coins. On the other hand, Bitcoin’s mining difficulty reduces when few miners try their luck. Consequently, Bitcoin’s mining cost depends on the number of competing miners. Additionally, some miners lose money trying to mine this virtual currency. And if mining becomes very profitable, the cryptocurrency will be oversold or overbought.
Quantity money theory
The quantity money theory provides another approach for determining Bitcoin’s fair value. To do this, factor transaction velocity, total supply, and the cost of services and goods people use Bitcoin to buy. But with this theory, even generous outputs could fall short of the mining cost and, therefore, not account for Bitcoin as value storage. Additionally, gauging peer-to-peer transactions value can be difficult.
Opinion about factors determining Bitcoin’s fair value
Bitcoin and other virtual currencies have a complex nature. What’s more, people can value Bitcoin in different ways. Therefore, considering all factors discussed here makes sense because there’s no standard model for determining Bitcoin’s fair value at the moment. Other factors, like growth potential, can form a basis for speculating on Bitcoin’s fair value.
But until this happens, the world will continue gauging Bitcoin against the U.S dollar. That’s why some people say Bitcoin’s value is $20 or $60,000. And this hints at Bitcoin as a flawed payment system that is unstable value storage. Ideally, this approach makes Bitcoin seem like a gambling chip.
Factors speaking to Bitcoin’s value
Several factors impact Bitcoin’s value. Ideally, cryptocurrencies like Bitcoin derive their values from market speculation. But, factors like demand and supply form the basis for this speculation. What’s more, fundamentals like daily transactions, transaction cost and speed, and mining costs can help in determining this cryptocurrency’s value.
Value storage is another factor that can help in determining Bitcoin’s fair price. Ideally, value storage is what gives Bitcoin utility and vice versa. People know they can use this virtual currency to acquire a certain amount of goods or pay for specific services. Bitcoin’s utility creates its value. Ideally, people want to hold onto their Bitcoins because they know they can use them later to acquire products, services, or profits.
Bitcoin compares to a commodity that follows the demand and supply role. When Bitcoin’s demand increases, its value increases, and when more people want to sell their tokens, Bitcoin’s value drops. Thus, demand and supply can determine this cryptocurrency’s value at any moment.
Bitcoin doesn’t have value because people agree it has it. Market speculation is also not the only reason why this virtual currency has value. Instead, several factors determine its fundamental value.