Bitcoin price , how does it work? What gives this crypto currency prices its value? Why does the price go up or down? And why is there such volatility, such large price differences from week to week?
All these questions that we can ask ourselves when we arrive in the cryptosphere are quite legitimate. First of all, it must be understood that Bitcoin is a cryptocurrency which is very young (10 years old in 2019), which is different and which is based on a revolutionary principle which is at odds with the functioning of crypto currency prices.
Bitcoin, a revolutionary concept
First of all, remember that Bitcoin was invented in 2009 by the mysterious Satoshi Nakamoto . Although this pseudonym sounds Japanese, we don’t actually know anything about his true nationality. Is he Japanese, American or Spanish, many speculate, no one really knows. In the same way, we do not know if it is a woman, a man or a collective. Still, Satoshi created a computer protocol called Bitcoin. Thanks to this protocol, it is possible to transfer value peer-to-peer (from individual to individual) via a secure network called a block chain (or blockchain).
It is on this chain of blocks, imagine a large open and decentralized account register, that all the transactions that are made between the individuals who exchange value are recorded. Approximately every ten minutes a block is created and is linked to the previous block, hence the image of the blockchain. Each time a new block is generated, a certain number of bitcoins are created at the same time..
Unlike what happens in so-called traditional finance, bitcoins are not issued by a bank or backed by a government. Bitcoin is a free computer protocol, open to everyone and therefore not controlled by anyone. Monetary policy measures, inflation rates and the famous image of the spinning money printing press therefore do not apply to Bitcoin.
21 million bitcoins, no more
If the quantity of gold on Earth is certainly finite, very clever is he who is able to know it with precision. Opinions already diverge regarding the total mass of gold mined. For some, such as the precious metals consulting firm Thomson Reuters GFMS , this figure would be 171,300 tonnes, an estimate refuted by the Gold Standard Institute which gives the following range: between 1.2 and 2.5 million tonnes
With regard to crypto currency prices, the number of dollars or euros in circulation is very fluctuating since it is possible for commercial banks and state banks to create money ex-nihilo.
For Bitcoin, it is very different since we already know from day one how many bitcoins will be in circulation when all bitcoins have been generated, namely 21 million. In 2140, there will therefore be no more new bitcoins that will be issued. Approximately every four years, the number of bitcoins that are created with each block is halved. This phenomenon is called the halving . 50 bitcoins were created every 10 minutes in 2009, 25 from 2013, 12.5 from 2016 and in May 2020 the figure will increase to 6.25 until reaching a total of 21 million around 2140.
But why limit the amount of bitcoins you ask? Simply to generate an asset that can have intrinsic scarcity, the same way precious metals like gold have value. Like the precious metal, bitcoins will be increasingly difficult to mine.
What makes Bitcoin valuable
We come to our main question, what makes the course of Bitcoin, gives it its value? This is simply determined by supply and demand. Here we find the good old concept of traditional markets. The stronger the demand, the higher the prices and vice versa. According to the Investopedia site, however , several factors can have an impact on the price of Bitcoin: the number of competing crypto curreny prices, the exchanges on which Bitcoin is traded, the regulations governing its sale or its internal governance.
High volatility that fades
Bitcoin is an asset that is still very volatile, but less and less so. Being a still very young asset, its market capitalization is very low compared to those of fiat currencies. As of this writing, its market capitalization is 150 billion USD. For comparison, according to the FED , there were 1.70 trillion dollars in circulation as of January 31, 2019, i.e. 1,700,000,000,000,000,000 USD or 1.7 billion billion. Here is a visual illustration to better understand:
With such a low market capitalization, it is only natural that players who speculate and hold large amounts of bitcoin have a strong influence on the market and the price of bitcoin. In the same way that a small boat placed on the ocean (Bitcoin) will pitch a lot if the sea is raging, the ocean liner (dollar) will barely move. But note that this volatility tends to decrease over the years. Just look at the following graph which shows the percentage of Bitcoin volatility since 2010 to realize that it is getting lower and lower:
Follow the course of Bitcoin
To follow the price of Bitcoin, simply go to a site like CoinMarketCap to find out the price of Bitcoin or use our real-time price tracker to find out the price of BTC on the different exchanges.
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