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How is Bitcoin’s Price Determined?


One of the main aspects of Bitcoin and cryptocurrencies is their price. To be honest, that’s what most people know about Bitcoin – the sky-high and volatile price. It’s definitely its most important aspect considering the fact that it is a currency you can pay with. But, with no banks to regulated it, who dictates Bitcoin’s price?

Unlike traditional currencies, Bitcoin is not backed by the government or issued by banks. Monetary policies, inflation rates, and economic measurements do not apply to it or influence it. Bitcoin’s price is determined by a number of factors which we’re going to explain below.

Understanding Bitcoin’s Price Volatility

Bitcoin is a peer-to-peer system that doesn’t work in the same way currencies do. Since it’s not issued by banks or backed by a government, its price fluctuates as no one dictates it. Well, someone does – the users who mine it. Of course, the price is determined by other factors too and is much more volatile than fiat currencies due to no inflation rates.

So, what makes the price so volatile? Well, the bad rep Bitcoin gets certainly plays a role. News events about Bitcoin can scare users away, and when a government renounces it the price goes down several percent. To make matters worse, Bitcoin has been surrounded by controversies since the beginning, and many investors were scared right away.

News which shock investors and its use on the black market and dark web have led to numerous price fluctuations. These events have spread panic in the public and especially among investors. As a result, the price went down every time news headlines spew hate at it, resulting in the burst of many highs.

On the other hand, recent developments suggest that the market is much more mature than the burst bubble in 2017. Bitcoin exchanges are evolving and it’s getting much easier to buy it online. The top trading platforms in the business such as use cutting-edge tech and even AI to help you deal BTC easily, and mining is still going strong, especially in China.

Bitcoin’s price volatility remains, but it’s in no way similar to the market in 2017. As a matter of fact, the cryptocurrency has matured a lot and as a result, the price is stabled than earlier.

Driving Factors that Affect Bitcoin’s Price

In the simplest terms, the price of Bitcoin is determined by the supply and demand. As the demand for Bitcoin goes up, so does the price. When demand falls due to bad rep or anything else, the price takes a tumble. Additionally, the fact that there is a limited number of Bitcoins in circulation makes things worse. Due to this, the demand must follow the level of inflation in order to keep the price relatively stable.

The Bitcoin market is pretty small compared to currencies or even gold. Thanks to that, it takes only a relatively average amount of money moved to influence the price. Other factors can also contribute to the volatility and send the price up or down. The chief among them are:

  • Cost of producing a Bitcoin via mining
  • Rewards miners get for verifying blockchain transactions
  • The exchanges Bitcoin is traded on
  • Government regulations
  • Internal governance
  • Numbers of competing cryptocurrencies

Is Bitcoin a Bubble?

This is the million-dollar question that many investors want to learn the answer to. Just because the price is volatile doesn’t mean it’s a bubble. The Bitcoin market is still young and unstable, and changes in sentiment still affect it. As it grows older, the volatility should change. Bitcoin is already being compared to the price of gold, so now’s the perfect time to invest in it and look toward the future.

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