I will explain what determines the price of Bitcoin.
The price of Bitcoin (BTC) is a very interesting topic, especially considering that it reached an all-time high in November 2021, topping $ 68,000. But you may be wondering what factors determine its price. Don't worry, I'll try to make you understand.
The first thing you should know is that Bitcoin is a fully decentralized monetary system, so no central authority issues this asset. So how do you get bitcoin?
This is where mining comes into play. The role of this process is critical to the existence of Bitcoin and other cryptocurrencies. Due to mining, transactions are verified and grouped on the network, and then added to a type of ledger called a blockchain.
Miners are responsible for verifying transactions by solving a series of cryptographic puzzles. The first person to extract a block will be rewarded. A new block is added to the blockchain approximately every ten minutes. Only then is it possible to generate new coins.
Up to here I think everything is clear
The first factor that makes the price go up
Does the halving make the value of bitcoin tend to increase? the answer is YES. The first halving was in 2012 and caused the price to rise from $ 11 to $ 1,000 in just one year. Then according to CoinMarketCap data, at the end of 2016, it increased from $ 430 to $ 1,000. The last halving was in 2020. In the same year, its value increased from US $ 5,000 to almost US $ 30,000.
The second factor that influences the price is, Supply and demand
Like other assets, the price of Bitcoin is subject to the laws of supply and demand. Simply put, the higher the demand, the higher the price, and vice versa. Demand is the amount of goods and services that consumers want to buy at any given time. On the other hand, the supply is the amount of goods or services that can be bought in the market.
Third factor influencing price, CHINA.
China announced a series of restrictions in May 2021 to curb cryptocurrency mining.
As a consequence, a few days after the Chinese government's announcement, the price rose from US $ 45,000 to US $ 30,000. These measures not only affected the general confidence of investors and users in BTC, but also caused a drop in the hash rate due to the shortage of miners connected to the network. All of this caused prices to plummet due to reduced demand and increased supply. In other words, in the face of uncertainty, there are more people who sell BTC than people who buy it
Fourth factor, influential figures.
The opinions of big businessmen and influencers in the ecosystem are also factors that affect supply and demand and even prices. A clear example is the CEO of Tesla, Elon Musk. In March of this year, Musk announced that his Tesla company would accept Bitcoin as a payment method. Therefore, according to data from CoinMarketCap, the price rose from US $ 46,000 at the end of February to a new high of US $ 61,000 on March 13.
So the next question is, why does the price keep going up?
Well, the answer is the following: The more people want to obtain bitcoins, the lower the supply will be and the demand will increase, which is reflected in the price increase.
And then who controls this price.
The short answer: the market itself. Through the supply and demand relationship, the price of Bitcoin is determined. The higher your demand and the lower your supply, the higher the perceived value. Now other factors also play a role, such as government behavior, external events, reputation and perceived usefulness, trust, and opinions of influencers in the ecosystem.
I hope that with this explanation you understand more how Bitcoin works