Bitcoin is the pioneer of cryptocurrency. Created by a person or persons using the pseudonym of Satoshi Nakamoto in the late-2008 and 2009, Bitcoin works on a decentralised system. It remains free from the intervention of banks, financial institutions, or even governments. Users who sell and buy Bitcoins keep records of all the transactions in a public digital ledger called the blockchain.
Over the years, Bitcoin has become a significant player in the financial world. But why exactly is Bitcoin valuable? And what factors influence Bitcoin’s value? Let’s break it down.
Limited Supply
Most people know what is Bitcoin, but have you ever wondered what differentiates Bitcoin from fiat currencies? Unlike fiat money that can be endlessly printed by central banks, Bitcoin has a fixed supply. The maximum number of BTC ever to exist is 21 million.
And that’s not all. Roughly every four years, a pre-programmed event is triggered that cuts the rate at which Bitcoin is produced in half. As of now, there have been four Bitcoin halving events. The fourth and latest halving occurred on April 19, 2024, taking the mining reward down to 3.125 BTC. Record-breaking highs in price were recorded after the fourth halving event.
Due to this scarcity, a sense of exclusivity is attached to the buying and selling of coins, attracting investors and traders.
Market Sentiment
Market sentiment is another dominant factor increasing the demand for cryptocurrencies, such as Bitcoin. It is a snapshot of the overall attitude of investors towards a specific asset or financial market, such as Bitcoin. During market sentiment analysis, you can see whether the investors are optimistic (bullish) or fearful (bearish).
The following factors influence market sentiment:
- Economic indicators like inflation news or GDP growth
- News and media coverage
- Regulatory announcements
- High-profile endorsements
- Social media buzz, such as spikes in search trends or hashtags
- Political events
Rising crypto prices generate headlines and grab investors’ attention. However, successful traders gradually learn to recognise sentiment extremes. They stick to their trading strategies and ensure robust risk management to avoid suffering losses.
Store of Value
Bitcoin has incredible store of value, which is often called “digital gold.” Similar to gold, Bitcoin often remains immune to inflation and rapidly changing market conditions. Bitcoin was first created in 2009, and it has shown a long-term appreciation potential since then.
Such characteristics attract investors who wish to protect their wealth from economic downturns.
Regulation and Legal Framework
Global regulations and legal frameworks also influence Bitcoin’s value. When authorities set clear rules, such as whether Bitcoin is a commodity, security, or currency, there is less uncertainty among investors. Approval of Bitcoin in major markets also signals legitimacy.
On the other hand, sudden bans lead to price drops. For instance, in September 2021, China implemented a blanket ban on cryptocurrency trading and mining. This forced many miners to take their business elsewhere.
The bottom line is that a balanced legal framework that protects consumers and encourages innovation greatly impacts Bitcoin’s value and position.
Visit the rest of the site In Tech Times for more interesting and useful articles. Thank you!
