What Determines the Price of a Bitcoin

In January 2017, the Bitcoin price hovered around the $900 mark. Who would have thought that merely six months later, the Bitcoin price would soar past $2,500? Amid doubts and disbelief, the value of Bitcoin continued to skyrocket, to breach the $4,300 mark on August 17.

“…the floodgates are opening,” said Ronnie Moas, founder of Standpoint Research, while describing what was happening to the Bitcoin during his interview with CNBC. He projected Bitcoin price to climb to $7,500 by the end of the year. Moas also indicated that the value of a Bitcoin could soar to $50,000 by 2027.

To better understand this surge in Bitcoin price, it’s important to know what determines the value of this digital currency.

Factors Driving Bitcoin Value
Bitcoin is not a physical commodity, like oil or gold. Neither does it have the backing of a physical commodity, as in the case of futures. Although this digital currency has evolved into a widely-accepted method of exchange, it is not a legal tender like EUR or USD. So, what really determines the BTC / EUR or BTC / USD exchange rate?

Bitcoin price is determined by the market forces of demand and supply. Over the last decade, Bitcoin has gained increasing acceptance, for purchasing goods and services, for trading on an exchange and as an investment option that is not impacted by inflation. These factors, along with benefits like anonymity (governments cannot trace and track this currency), have boosted the demand for Bitcoin.

While demand has been rising, supply is restricted. The creator of Bitcoins, an anonymous individual or group, has set a cap of 21 million on Bitcoin volume, or the number of coins that will be in circulation.

The surging demand and restricted supply has resulted in the jump in Bitcoin price, and the uptrend is expected to continue.