It is a well-known fact that the value of one Bitcoin has increased from nearly zero to almost 8000 USD in a span of 10 years. However, have you ever wondered what contributes to this increase in the value of Bitcoins in such a short period when compared to other investment opportunities?
This article will provide a brief on the different external environmental drivers of the Bitcoin value based on the data collected from exchanges, search engines, stock markets, Blockchain valuation, gold price, dollar value and the Bitcoin Price & Financial Stress Indices.
- Economical Factors
Economic factors contributing to the value change in Bitcoins are:
- The supply of Bitcoins,
- The price level of the Bitcoins, and
- The use of Bitcoins, which is normally measured by the number of transactions
Thus, when the supply of Bitcoins is low and optimized, Bitcoin value experiences an upward trend. Additionally, when the use of Bitcoins in different real-world scenarios increases, the value of Bitcoins also increases.
- Transactional Factors
The value of Bitcoins is highly depended on the number of transactions that are carried out in the real world. The factors that determine what drives the transactional value of Bitcoins are:
- The demand for Bitcoins, and
- Bitcoin usage
As a natural rule, when the demand is high, the price of each Bitcoin value also becomes high. However, the value of Bitcoins is affected by four market conditions, which includes market volatility, speculation, uncertainty, and dollar value. An increase the value of the dollar will have a negative impact on the price of a Bitcoin. On the other hand, the volume of trade and the number of trade transactions give an approximate measure of Bitcoin usage. More real-time transactions using Bitcoins leads to Bitcoin price appreciation.
- Technical Factors
The main technical factor that contributes to the price of Bitcoins includes
- The level of Bitcoin mining.
New Bitcoins are introduced during Bitcoin mining as per planned algorithm. Thus, the right solution to a technically challenging problem will result in the creation of new Bitcoins. Therefore, the technical difficulty of Bitcoin mining will have a direct impact on the value of Bitcoins. Higher the difficulty, higher will be the price of Bitcoins.
- Popularity Quotient
The popularity of any currency will have a direct positive impact on its price. The more interest people show towards Bitcoins, its use, and mining, more will be the price of a Bitcoin.