Economics 101

what is bitcoins price based on

As a growing number of people become aware of and interested in Bitcoin --especially when the price tends to increase -- we often get asked:. Many people find it difficult to grasp how something which only exists digitally can have any value at all. The answer to this question is rather simple and it lies in basic economics: scarcity, utility, supply, and demand.

By definition, if something is both rare scarce and useful utility it must have value and demand a specific price , with all other things being equal. 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. Like gold, Bitcoin is also scarce: its supply is limited. There are currently just over 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 also has other desirable properties. It is fast, borderless and decentralised 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. 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. Today, there are already thousands of merchants around the world accepting Bitcoin as a means of payment, thus proving the growing usefulness of it. Take telephones, for example.

When the first 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.

The same is true for Bitcoin: the more people who start using and understanding it, the more useful it will become to everyone else. The price of Bitcoin is not the same as its value. Price is determined by the market in which it trades: by means of supply and demand. This is the same way the price of your secondhand car, a bag of apples in the supermarket, an ounce of gold and just about everything else is determined. Traders with bank accounts in our supported countries can trade Bitcoin on the Luno Exchange , which sets the specific price at a specific time for a specific market.

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.

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. The price of many things, such as stocks, currencies, 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. That said, the volatility of Bitcoin has consistently been going down and it has become much more stable in recent times. We created a Bitcoin Price Calculator page, where you can see what price of Bitcoin was with Luno at any time in the past.

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. Want to buy some Bitcoin? Get started here. On our way to the moon, we write about all things crypto.

Our blog conveys the views of Luno and the many unique opinions and characters within our team. Want to let us know how much you love our blog? Tweet us lunomoney. Price charts Bitcoin price Ethereum price Bitcoin Cash price. About Company Careers Press. Economics The answer to this question is rather simple and it lies in basic economics: scarcity, utility, supply, and demand.

So what does this all have to do with Bitcoin? Bitcoin is not just scarce, it also has utility Bitcoin also has other desirable properties. How the price of Bitcoin is determined The price of Bitcoin is not the same as its value. Why does the price change so often? How has the price of Bitcoin changed over time? Hot topics.

what is bitcoins price based on

Bitcoin Is a Volatile Asset; How Is Its Price Set?

For better or worse, Bitcoin was one of the hottest topics of purely due to its rapid price appreciation. Bitcoin is being traded at a much lower price than it was a year ago, but does this price reflect its real value? If not, what is Bitcoin really worth? Calculating what is Bitcoin worth using the size of the network. The complete concept of how Michael reached the conclusion of pricing per user is vague, but his proposal was widely read. But Bitcoin's pricing is much harder to value than just taking an analysis of how many people use it. Scarcity: This affects Bitcoin's price as we know that only 21 million Bitcoins will ever exist.

INFO ON Bitcoin

Email address:. Not convinced? Check out our latest bitcoin newsletter. We also have historical bitcoin charts comparing the price of bitcoin to USD along with bitcoin price predictions. When people talk about the price of Bitcoin, they are referring to the current price at which Bitcoin is changing hands. Since Bitcoin is a purely speculative asset, this price is determined by how little sellers are willing to charge and how much buyers are willing to pay.

what is bitcoins price based on

So what does this all have to do with Bitcoin?

In this Bitcoin price prediction guide, I will first give you a quick overview of what Bitcoin actually is, followed by a brief explanation of the things to consider before you invest heavily based on a price prediction guide just like this one! After that, I will then discuss some popular price predictions for the year and let you know my thoughts on each of. Finally, I will then discuss some of the upcoming real-world events that could affect its price movement going forward.

Bitcoin allows people to send and receive funds without a third party intermediary and as such, it is a decentralized payments. The network is controlled by no single person or authority, nor is it backed by any central bank.

In return, miners are rewarded with additional Bitcoin for contributing to the network. The technology that supports What is bitcoins price based on is called a blockchainwhich is like a giant accounting book. Every single transaction that has ever been processed on the Bitcoin network is available to view on the blockchain.

Furthermore, once a transaction has been added, it can never be changed or removed — which makes it extremely transparent.

When sending Bitcoin to another person, a transaction normally takes about 10 minutes. In total, the network can process about 7 transactions per second and fees depend on how many people are using the. The Bitcoin project has been an amazing success — when it was first released inits price was less than onn cent.

Not only this, but the creation of Bitcoin has encouraged more than 1, different cryptocurrencies to enter the market to date. In reality, nobody can predict the future of a cryptocurrency, but if we could, we would all be billionaires.

In the cryptocurrency world, prices are very volatile. This means that the value of a coin can go up or down really quickly, with often no explanation as what is bitcoins price based on why. This makes predicting prices much more difficult than traditional markets.

When considering the future value of a cryptocurrency, it what is bitcoins price based on always better to look at real-world events.

This can include improved technology, future roadmap objectives, new partnerships or even regulations. The most important thing is that you always perform your own independent research before making an investment. Never buy a cryptocurrency just because a price prediction excites you, or because your favorite YouTuber told you to! At the end of the day, everyone has a different opinion and bitcois is no guarantee that anyone will get it right.

So, now that you know what to consider when reading predictions, the next part of my Bitcoin price prediction is going to analyze basev well-known Bitcoin predictions.

To be honest, he seems rather confident to me. McAfee claims that his prediction is based on his own price prediction model, however, nobody knows what this looks like. Market capitalization is used to work out the total value of an asset or business. It is calculated by multiplying the current market price against the total amount of coins or shares in prjce. The next O price prediction that I wanted to discuss is by an analyst called Tom Lee. Lee works bitcions the cryptocurrency research organization Fundstrat and he is well-known for discussing the price performance of Bitcoin live on TV.

This particular researcher is highly experienced in chart analysis. This is when you look at historical price movements of a coin and then make a future prediction based on how the coin has moved in the past.

In reality, Bitcoin is probably what is bitcoins price based on only cryptocurrency that you can do chart analysis. This is because other coins do not have enough trading volume or enough historical data, whereas Bitcoin has a track record of 9 years! The next Bitcoin price prediction I wanted to talk to you about is a really interesting one, performed by the analyst Osato Avan-Nomayo from Bitcoinist.

This prediction is based on the fact that in the Bitcoin mining reward will be halved from As you will see from the chart below, the Bitcoin mining reward has halved twice in its history. The historical price chart shows that when these two events happened, the price of Bitcoin experienced new heights shortly. Strajnar argues that adoption rates are increasing all the time, which oon more and more people using ln network and an increase in wallets and apps.

This is a good argument because as more people buy and use Bitcoin, its price will of course increase. In fact, in countries such as Japan, there are more thanstores that you can spend Bitcoin in the real world. So, this also helps increase the price as it gives the cryptocurrency real-world usage. So, what do you think of the Bitcoin price predictions I have listed above? Do you agree with them, or are you still not convinced?

I mentioned earlier that one of the most important things to consider when looking at the Bitcoin future price are real-world events, such as technical advancements and regulations.

I have listed some of the absed below that could affect its price. Although Bitcoin is number one cryptocurrency in terms of market capitalization, reputation and real-world usage, the performance level of its transactions are actually quite poor. In fact, there are many other cryptocurrencies that are faster, cheaper and more scalable.

Firstly, it takes 10 minutes to confirm a transaction on the Bitcoin network. Other coins such as Ethereum can verify transactions in around 16 seconds. Secondly, Bitcoin fees are now much higher than they used to be and now cost dollars rather than cents. Thirdly, and probably most importantly, Bitcoin can only confirm 7 transactions per second. For example, NEO pricee Ripple are able to confirm thousands of transactions per second, so if Bitcoin is to become a global payments system then it must improve bitcoiins.

A company called Lighting Labs which has received investments from senior individuals from Twitter, PayPal, and Litecoin are very close to releasing a protocol that will significantly improve the performance of Bitcoin transactions.

Known as the Lighting Network upgrade, it is believed that the protocol could allow the Bitcoin network to increase its maximum transaction limit to millions per second. Furthermore, transactions will also be much faster and cheaper. If the Lighting Network is wjat then it should have a very positive effect on the price of Bitcoin. Even though Bitcoin has been trading for almost 10 years, regulation is still in its very early days. There appears to be a theory that when governments start regulating it, the price of Bitcoin will be negatively affected.

InJapan became the first nation in the world to completely regulate Bitcoin in the same way as its financial services industry. In fact, the Japanese government classes Bitcoin in the very same way as its Yen currency. Since this happened, Japan now has the highest trading volume in the world for Bitcoin.

People also use it every day in the real world as there are overstores that accept it! Once other major nations follow the same regulation policy as the Japanese government, it will give Bitcoin far more legitimacy. Not only would this mean that people start to trust Bitcoin more, but it could also allow large financial institutions to start investing.

Ultimately, if this is the case, the price of Bitcoin should increase. As mentioned above, there are more thanstores in Japan that accept Bitcoin. Although there are also stores what is bitcoins price based on other nations such as the USA and UK, the amount oj stores is rather small. As more and more companies start to accept Bitcoin, it will allow people to start using it as an actual currency.

On the other hand, if a really popular app decided to start accepting Bitcoin as its main currency, this would also give the coin more value. Essentially, if Bitcoin can increase its real-world usage, we could see one of the really positive Bitcoin price prediction come true.

Although Bitcoin has always been the number one cryptocurrency, it is important to remember that there are more than 1, different coins in bitcoijs market.

Although most of these projects have been built on top of other blockchain protocols such as Ethereum, there are also lots of individual blockchains. There is no guarantee of which cryptocurrency will dominate in the future, so you should always research and keep on top of what other projects are doing.

Furthermore, what is bitcoins price based on central banks and governments are considering releasing what is bitcoins price based on own cryptocurrencies too, which could be in direct competition with Bitcoin. Before I give you my own personal opinion, I wanted to make it what is bitcoins price based on that I am not giving you financial or investment advice.

Just like the predictions I discussed above, nothing is ever guaranteed. You should always make a decision based on your own research, so please consider. Anyway, overall I believe that there will be multiple cryptocurrencies visit web page play a major role in the future of transactions.

However, I think ob Bitcoin will always be the most trusted and stable cryptocurrency of them all. Instead, I think it will act more as a store of value. Note: A ia of value is where people buy an what is bitcoins price based on to keep their money safe, just like Gold and Silver, in the hope that it increases wnat value. In my opinion, although Bitcoin has been around for 9 years, it is still very early days.

If more countries start to regulate it as Japan did, then I think it has a really good chance of increasing its price by However, in the very near future, I think the biggest event could be the installation of the Lighting Network upgrade. However, if you bought Bitcoin in late and held it up biitcoins now, you would be significantly.

If you believe in the ideology of the project, then it is best to hold your Bitcoin long-term, because at the moment the markets are still very volatile.

If you have read it from start to finish, you should now have a really good understanding of what Bitcoin is and what it plans to achieve. Do you agree with any of these Bitcoin forecast models or do you see a different story? If so, do you think its price will go higher, or alternatively, lower?

I also discussed some of the future developments that could affect vased price of Bitcoin, including an upgrade of its technology, regulations, future partnerships and its competition. Do you agree with me that over the long-term, Bitcoin could be used more as a store of value, or do you think it will follow the original plan of its creator and be used as a medium of exchange?

Whatever your thoughts are, please let me know your Bitcoin price prediction in the comments section below! Save my name, email, and website in this browser for the next time I comment. Bookmarked and shared. Thanks once again! This article gives good idea about the bitcoin prediction. Slow processing time is the reason why bitcoin is not adopted as mode of payment by. Because of this less and less people believe in it. Because of that the price of bitcoin is at a free fall.

What Is Bitcoin (BTC) Worth Now

As traffic grows, more Bitcoin users may use lightweight clients, and full network nodes may become a more specialized service. Economics What Is Money? Popular Courses. Part Of. From a user perspective, Bitcoin is pretty much like cash for the Internet. Some early adopters have large numbers of bitcoins because they took risks and invested time and resources in an unproven technology that was hardly used by anyone and that was much harder to secure properly. The value of the first bitcoin transactions were negotiated by individuals on the bitcoin forum with one notable transaction of 10, BTC used to indirectly purchase two pizzas delivered by Papa John's. The Washington Post. In Junethe bitcoin symbol was encoded in Unicode version

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