Bitcoin is a familiar digital currency, often known as a cryptocurrency. Unlike the euro, yen, peso, pound, dollar, and other government-backed currencies, cryptocurrencies are not officially backed by any central bank or government. Instead, the currency trades in an open marketplace similar to the stock market, where buyers and sellers can exchange their local currency for bitcoin or vice versa.
While several cryptocurrency exchanges have their own trading platforms and prices may differ significantly, the overall market price of bitcoin is merely the latest trade price where a buyer and seller agreed on a price. Bitcoin enthusiasts, on the other hand, frequently claim that the inherent value of bitcoin is in the six-figure range, while skeptics claim that it could worth Zero. Continue reading to learn how bitcoin’s price is determined and how you may participate in the market.
Who Sets Bitcoin’s Price?
The same market factors that impact the value of any other item or service influence the value of bitcoin. If there are more buyers than sellers, prices are likely to rise. When there are more buyers than sellers, the price tends to drop. The stock market, real estate, and most other open markets work in a similar way.
Bitcoin has a set maximum supply of 21 million coins, and roughly 19 million have already been generated as of Sept. 23, 2021. This concept is analogous to the concept of outstanding stock in the stock market.
The order executes when an open and sell order meet at a common price. The current bitcoin value is reflected in the final trade price. A site like CoinMarketCap or a public blockchain explorer, which allows anybody to study any bitcoin transaction that has ever occurred, can be used to find the most recent bitcoin price.
You may notice that different exchanges list different bitcoin prices. Because some exchanges operate separately from the open market and only serve their members, prices may differ slightly from the overall market. This can benefit members because they can acquire bitcoin without having to pay network fees, which can be more than the exchange fees. Furthermore, some exchanges, such as eToro, charge a “spread” in the bitcoin price, which makes it significantly higher than the market price.
Bitcoin’s Price vs. Value
When buying or selling any financial product, it’s important to distinguish between price and value. The price is the current cost, or what someone is willing to pay for something right now. The value, on the other hand, is what something is worth, and price doesn’t always equal value.
For example, in the stock market, the value of a share of stock is determined by analysts reviewing the company’s financial performance and prospects. Bitcoin, on the other hand, isn’t backed by a specific company or service, which makes it harder to find an intrinsic value for the digital currency.
Whether or not bitcoin has intrinsic value is an ongoing debate, and it’s important to consider both sides of the debate before investing in bitcoin. If the skeptics are right, bitcoin could dramatically fall in price, as many believe Bitcoin is just a bubble that will eventually pop. But if the bulls are right, there could be many more crypto millionaires in the future.
It’s important to understand that investing in bitcoin is highly volatile and risky. While you could buy bitcoin and earn a big return, there are also major risks of loss. For most people, it’s best to limit bitcoin investing to funds they can afford to lose.