The 5 Factors that Influence Bitcoin Prices and Valuation

Monday, 23 March 2020

The 5 Factors that Influence Bitcoin Prices and Valuation

Posted by Madhu Gupta
When the mythical Satoshi Nakamoto, first developed Bitcoin in 2009, very few people took notice. However, even after a decade, Bitcoin is not only going strong; it has also led to the development of other cryptocurrencies.
Bitcoin
Many people who are interested in Bitcoins and in investing in them are worried about one major thing. Bitcoins are highly volatile and fluctuate drastically in value. In recent years, some form of stability has come in owing to more government acceptance and other factors.

In this article, we will try to address a primary concern for investors and others interested in Bitcoins. We are going to look at five factors which influence price fluctuations.

The Factors that do not Influence Bitcoin Prices and Valuation

While it is important to examine factors, which influence prices, it is equally important to see what elements do not affect Bitcoin's valuation.
  • Remember that Bitcoin is not a traditional currency, perhaps, governed by federal reserves. In that sense, the valuation of a Bitcoin is by inflation. Like conventional currencies, growth factors, natural emergencies, and others are also not applicable to Bitcoins.
  • It makes Bitcoin a highly desirable source of investment for individuals and corporations. People should not lose sight of the fact that government authorities or financial institutions do not issue Bitcoins or any other form of cryptocurrency.

Which Factors Influence Bitcoin Prices and Valuation

If you want to know about the empowerment of the bitcoin prices and valuation, then here read the belw top five factors influencing bitcoin prices and valuations.

Bitcoin Supply and Demand

Like any other asset, Bitcoin empowers itself in the market. Most of you might know that there are only 21 Million Bitcoins allowed to mine. Prices shoot up when the supply is less, and the demand is more. It is, in turn, can be because of several reasons.
Bitcoin Miner Payouts, legal interventions from the government all play a part in determining supply and demand. All this fluctuates the valuation.

Competition from other Cryptocurrencies

If you follow forums and communities on cryptocurrencies, you might have heard about the popularity of Ethereum and Litecoin. Both these cryptocurrencies are making quite a splash in the digital currency ecosystem. 

Investors are spoiled for choice when it comes to where they should invest. Miners, too, are facing the same dilemma. With Facebook throwing its hat in the ring with Libra, the competitions seem to be heating up.

Bitcoin Mining is Expensive

Even though Bitcoin is a virtual currency, it supports infrastructure. Bitcoin Mining is the process, which leads to the successful discovery of one single block of Bitcoin. The significant resources required are electricity and fast computing hardware.

Bitcoin mining requires miners to solve complex mathematical algorithms using the power of their brains, computer systems, and electricity to run the operations. It is a complicated, technologically, advanced, and high investment task.

Government Regulations and Legal Interventions

The government stance on Bitcoins is not static. On some occasions, it becomes positive, while on others, it borders on banning the cryptocurrency. The SEC (Securities and Exchange Commissions) regulates Bitcoins in the USA. 

While the SEC considers it to be a security, the Commodity Futures Trading Commission or the CFTC believes it to be a commodity. Bitcoin faces the same problem nearly all over the world. Investors are wary of a currency where the government and institutions themselves are unsure.

Three Transactions Per Second Limitation

If you want something to become mainstream, you need to back it with the right kind of software. Bitcoin software allows for only three transactions per second. If you compare it with traditional digital currency based deals from payment gateways, you can see the stark difference for yourself. 

Developers need to make software, which makes transactions instantaneous. The faster the transaction, the more user-friendly it becomes. (Think digital wallets).

Conclusion

In the last couple of years, Bitcoin has been slowly growing and hitting a stable mark. With cryptocurrencies becoming more mainstream, we can expect more and more investments and investors to come forward. If you wish to know more about investing in Bitcoins, you can Try Profit Revolution Today.

In this article, we discussed certain factors that influence the prices of Bitcoin and alter its valuation. Can you think of some other similar factors? Let us know in the comments section below. 

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