What Determines the Price of Bitcoin?

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Contributor, Benzinga
November 14, 2023

Bitcoin is a volatile investment, often fluctuating double-digit percentage points each week. Even though Bitcoin –– and other digital assets –– are volatile, cryptocurrencies have outperformed almost any other asset class. Just over a decade ago, Bitcoin traded for less than $1. In 2021, Bitcoin surpassed $65,000 and investors are bullish on the asset class heading into 2023. What determines the price of Bitcoin, and does it have real value?

Determining Factors of Bitcoin's Price

Like gold and silver, Bitcoin is a commodity. A commodity is a basic good that is interchangeable with goods of the same type. 

Some commodities, like agricultural products, have value because they are used as inputs for other goods or customers can consume them.

Other commodities, like gold and silver, have value because they are scarce and people give them value. So how is Bitcoin price determined? Its value is derived in a similar way as precious metals: based on scarcity and high demand.

And unlike a publicly traded company, Bitcoin is not governed by a central entity. It has no balance sheet, profits or revenues, which are commonly used to determine a stock’s price. Since Bitcoin doesn't operate like a company, the price is widely determined by market demand for the asset, leading it to be more volatile than stocks and other traditional investments.

Supply and demand determine the value of Bitcoin. Its supply is regulated by algorithms on its blockchain — about 6.25 Bitcoin are minted every 10 minutes. As of now, there are about 19 million Bitcoin in circulation, and the maximum supply of Bitcoin is capped at 21 million.

Market Supply 

The market supply of Bitcoin is determined by how much Bitcoin is for sale on the market. Sellers can choose the price they want to sell Bitcoin at, so the number of buyers has to be greater than the number of sellers at any given price for Bitcoin’s price to increase. 

Bitcoin’s value is also impacted by losses. According to the cryptocurrency data firm Chainalysis, about 20% of all Bitcoin (around 3.7 million) have been lost. This number is determined by Bitcoin stored in a cryptocurrency wallet that hasn't had any interaction in the last 5 years.

Market Demand 

The market demand is determined by how many buyers there are for Bitcoin at any given time. As buyers purchase Bitcoin, they drive the price of the commodity up. Once sell orders at a certain price are bought up, the price increases to the next lowest sell order price. 

Many factors drive up Bitcoin’s demand. Here’s a list of some of the most important factors.

  • Inflation of fiat currency: If a country’s currency is suffering from inflation, more people demand Bitcoin. Bitcoin is less likely to depreciate in value than a currency suffering from inflation.
  • The media: The media plays a large role in stimulating market demand for Bitcoin and what determines Bitcoin’s value. As Bitcoin’s price rises, more media outlets give the commodity coverage, and market demand for Bitcoin rises.
  • Regulation: Government regulation can impact market demand positively or negatively. Regulation makes cryptocurrencies more safe and accessible. However, these regulations may deter some investors from buying Bitcoin in the short term because of increased taxes and more transparent consumer identification.
  • Politics: Bitcoin’s price often rises when the government becomes more unstable. Because the U.S. government controls the dollar, fewer people trust fiat currency when the government is unstable, resulting in an increase in demand for Bitcoin.

Bitcoin Miners

Bitcoin miners affect the market supply of Bitcoin in a unique way. Miners secure Bitcoin’s network with computational power, and they are paid in transaction fees and block rewards. 

The block reward is the amount of Bitcoin rewarded for completing a block on the blockchain, which is currently 6.25 Bitcoin per block. These rewards are newly minted Bitcoin, and the reward halves every 4 years during what’s called the Bitcoin halvening. Bitcoin is set to halve its block reward in 2024. 

As you evaluate how is Bitcoin’s price is determined, you’ll see miners play a role. Bitcoin miners hold Bitcoin, but many large operations sell Bitcoin once they receive block rewards. Miners sell Bitcoin to lock in profits because of Bitcoin’s volatility. Selling newly minted Bitcoin drives the price down.

Electricity Costs

Another key factor in what drives the price of Bitcoin is the cost of electricity because miners use large amounts of electricity. If the price of electricity is low, then miners can profit more from Bitcoin, meaning that they are more likely to sell Bitcoin for profit. If the price of electricity exceeds the price at which miners can sell for a profit, they’re better off not mining at all. 

Competition From Other Cryptocurrencies

Cryptocurrency exchanges commonly have altcoin-Bitcoin pairs. Altcoins are any cryptocurrency other than Bitcoin. Because exchanges allow you to trade against Bitcoin, people often directly buy other cryptocurrencies using Bitcoin. To do this, they sell Bitcoin, driving up supply and lowering the price.

Current Bitcoin Price

While Bitcoin had a phenomenal run in 2021, bearish macroeconomic conditions have put downward pressure on Bitcoin's price for the first half of 2022. Heading into the second half of 2022, many investors are still bullish on Bitcoin and the asset class as a whole. Take a look at the most up-to-date Bitcoin price to better understand what determines Bitcoin price.

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$64252.00*

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-3.31%

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777 votes

Who Changes the Price of Bitcoin

No one person can change the price of Bitcoin significantly –– except maybe Elon Musk or Michael Saylor. The aggregate amount of buy and sell orders from all the crypto investors in the market is what changes the price of Bitcoin. Some players in the crypto sector have more impact on Bitcoin’s price than others. 

Whales –– people who own huge amounts of Bitcoin –– can push prices up and down if they place large buy or sell orders. Data from Bitinfo affirms that very few crypto wallets hold most of the Bitcoin in existence: 99.5% of Bitcoin wallets hold a balance of less than 1 Bitcoin. Some people claim that whales manipulate the price of Bitcoin, but this information is hard to confirm. 

Satoshi Nakamoto, the anonymous creator of Bitcoin, owns 1 million Bitcoin and could potentially change the price of Bitcoin if it were sold. But this is an unlikely scenario, as the action would expose identity if that sale took place.

Bitcoin Crashes

Since it doesn’t have balance sheets, profits or revenues, it’s hard to give Bitcoin intrinsic value. Bitcoin’s price is mostly speculative and highly volatile. It’s not uncommon for Bitcoin’s price to drop 80% to 90% in bear markets before returning back past its all-time highs. There are also short-term price crashes during bull markets, but these usually don't surpass a 40% dip and typically recover shortly thereafter.

Best Bitcoin Exchanges

An investment in Bitcoin can be an exciting way to diversify your portfolio. To invest in Bitcoin, you need to sign up for an account with a cryptocurrency brokerage. There are many great options for crypto brokerages, such as Gemini, Coinbase, eToro and Kraken.

Take a look at Benzinga’s top picks for Bitcoin exchanges.

  • Plus500 Crypto
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  • eToro
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    Cryptocurrency is offered by eToro USA LLC (“the MSB”) (NMLS: 1769299) and is not FDIC or SIPC insured. Investing involves risk.

    eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk.

  • Paybis
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    Broad Range of Crypto Assets
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  • Coinbase
    Best For:
    Active Crypto Traders
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    securely through Coinbase's website

    Sum of median estimated savings and rewards earned, per user in 2021 across multiple Coinbase programs (excluding sweepstakes). This amount includes fee waivers from Coinbase One (excluding the subscription cost), rewards from Coinbase Card, and staking rewards. ³Crypto rewards is an optional Coinbase offer. Upon purchase of USDC, you will be automatically opted in to rewards. If you’d like to opt out or learn more about rewards, you can click here. The rewards rate is subject to change and can vary by region. Customers will be able to see the latest applicable rates directly within their accounts.

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Why is Bitcoin Valuable?

Bitcoin has value because people value it. The U.S. dollar, gold and silver are similar –– they aren’t backed by anything except people’s trust that these assets will hold, and hopefully increase, in value. 

Bitcoin can be considered a superior store of value in many ways. It doesn’t take up physical space, so it’s easier and cheaper to store than precious metals or fiat currency. Bitcoin can be sent around the world securely. 

Bitcoin is also the first commodity to have a finite amount in circulation. While precious metals are scarce, people can mine for more. With a limited supply that will increase demand, it’s not unreasonable to predict that Bitcoin could replace gold as a universal store of value in the future.

Frequently Asked Questions

Q

Why do bitcoins have value?

A

Bitcoin has value because people give it value. It is scarce, and there is only a finite amount, similar to gold and silver. Using Bitcoin as a store of value has many advantages over precious metals.

Bitcoin is much easier to store, transfer and own than gold. Precious metals that are used as stores of value also need to be stored in a physical location, making the cost of storing large amounts of gold much higher than the cost to store Bitcoin.

And there technically isn’t a finite amount of gold and silver. These precious metals are constantly being mined, adding to the supply. Companies are trying to find ways to mine precious metals from asteroids which could greatly increase the supply of gold.

With Bitcoin, there will never be more than 21,000,000 in supply. For these reasons, many investors see Bitcoin replacing gold as a universal store of value in the future.

Q

How are bitcoins created?

A

Bitcoins are created through a process called mining. Bitcoin miners power Bitcoin’s blockchain with computational power for block rewards and transaction fees.

The block reward is currently 6.25 bitcoin per block which is split proportionally based on the computational power the miners provide. A block is completed every 10 minutes, so 6.25 bitcoin are minted every 10 minutes

The block reward for mining halves every 4 years in an event called Bitcoin halving. This will happen again in 2024, reducing block rewards to 3.125 bitcoin every 10 minutes. This will continue for about 120 years until 2140 when all the bitcoins have been mined. Once this occurs, miners will profit solely from Bitcoin transaction fees.

Q

What is Bitcoins current all time high?

A

Bitcoins current all time high happened in November of 2021 when the token hit a price of $68,990.90.

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Rebekah Brately

About Rebekah Brately

Rebekah Brately is an investment writer passionate about helping people learn more about how to grow their wealth. She has more than 12 years of writing experience, focused on technology, travel, family and finance. Her work has been published in Benzinga, Hearst Bay Area, FreightWaves and Dallas Observer publications.