What determines the course of bitcoin? TOP 5 BTC Cost Factors

What determines the price of one bitcoin?This question is asked by many.Economic Factors of Demand andoffers, of course, are crucialimpact on the price of bitcoin. However, there are other factors, such as regulation, accessibility on exchanges, the cost of remuneration for the block, and the cost of mining.

In this article, we briefly review these factors and explain how they can affect the price of the main cryptocurrency.

Supply and demand

Supply and demand are the most importantfactors determining the price of any asset, and bitcoin is no exception. Diamond prices are high because they are made from diamonds that are rare in nature. However, if the market were suddenly replenished with a large treasure of diamonds, which would double their number, then this would immediately lead to a significant drop in diamond prices. This is how supply and demand work in the economy.

Bitcoin reserves are limited to only 21 million coins. So far, about 18.2 million bitcoins have been mined in the world. Every 10 minutes, when miners discover a new block, they get 12.5 bitcoins for this work, which replenish the total supply of coins in the world. That is why we can argue that bitcoin is currently prone to inflation. However, as soon as all 21 million bitcoins are mined, inflation will stop.

As you know, in May 2020 there will be a halvingBitcoin - halving the reward of miners. In Bitcoin, such a change occurs every 4 years, and this helps to curb the growth of the stock of coins. This time, the reward for the mined block will be reduced to 6.25 BTC.

Halving will lead to the fact that the demand for bitcoins will grow at a faster pace than the supply of coins will increase. Theoretically, this should help increase the price of bitcoin.

production cost

Bitcoin mining is an energy-intensive process, andtherefore, the extraction of coins is associated with significant costs. Mining equipment requires a lot of electricity to operate, since these machines solve many problems in order to get the next block. In total, bitcoin miners all over the world need about 77.78 terawatt / h. electric power - as much as a country such as Chile consumes.

In 2019, it was estimated that for miningone bitcoin requires electricity worth from $ 3,000 to $ 4,000; although it depends on the cost of electricity in a particular area where mining farms are located.

There is much debate about the cost involvedproduction with the price of bitcoin or not. Satoshi Nakamoto himself once said that "the price of any product gravitates to the cost of its production." However, there were also many arguments against this.

The concept of the price of a product or service, whichdetermined by the work expended on them, known as the “theory of the value of labor”, and it is popular among Marxists. However, other economists argue that the price of a product or service is determined by how much they are willing to pay for them, regardless of the effort.

This is a long and controversial discussion. However, it is only certain that the cost of mining Bitcoin in one way or another affects its price. When a deep correction occurs on the market, the price of bitcoin returns to the cost of production before experiencing significant growth again.

It should also be understood that halving will lead togrowth in the cost of producing one coin, and this is likely to affect the "bottom" of the market. And if bitcoin falls below the cost of production, then the miners will most likely turn off their equipment, since mining will become unprofitable for them.

The presence of bitcoin on exchanges

You could not buy or sell bitcoins,if they were not on exchanges. Buying bitcoins on cryptocurrency exchanges is the easiest way to get coins. If the availability of coins on the exchanges decreases, then the purchase of bitcoins will be difficult, which will lead to an increase in prices.

However, miners will always put up new coins on exchanges, as they need to pay their electricity bills.

Altcoin competition

Bitcoin remains the most dominant cryptocurrencyin the world. However, if competition among cryptocurrencies begins to heat up, then we can expect that the capitalization of the bitcoin market will decrease, and money will begin to go to the altcoin market. This can have a negative effect on the price of bitcoin.

Regulation

This is one of the most important factors affecting the price.bitcoin. Governments around the world seek to regulate the bitcoin and cryptocurrency markets, while some simply prohibit them. However, with optimal regulation, a huge number of large and wealthy institutions can join the cryptocurrency market, which theoretically should lead to an increase in prices.

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