What factors influence the price of Bitcoin?

Storm trooper action figure in grey background. Storm troopers are characters from star wars universe.
Storm troopers from Star wars universe

How is the value of a substance decided?

The action figure shown in the above photo is of a storm trooper, one of the most popular characters from the star wars universe. Now let us imagine that the price of such action figures to be $20 a piece. Being a popular character, almost every major toy stores in the world will have such action figures in their stock.

Now Star wars being a popular brand has huge fan following all around the world. Action figures like these are in high demand all around the year. Now when a new movie of this franchise is released, the craze amongst the fans increase, and the demand for such action figures also increase. As long as the supply of this item meets the demand, the price of the item will remain $20. If the supply increases, the price may drop. Now in case, the supply decreases, but the demand keeps on increasing, the price of the commodity will keep on increasing as long as there is no alternative available in the market. This is because, for every person out there who is willing to pay $20 for this item, there might be 2–3 more people who are willing to pay much more than $20 dollars because they might feel that the value of the commodity is way more than $20.

For the same reason as mentioned above , Gold and Diamond are considered to be valuable commodities. We value gold because of its storage value. Being a noble metal, gold can stay in an un-oxidized state for thousands of years.

A gold ornament. Somewhat looks like the bracelets worn by Wonder Woman.

The same concept can also be applied to Bitcoin as well. Initially, people started investing in it because they were able to transact amongst themselves without the need for a bank at very low transaction fees. This resulted in more and more people to adopt this currency. But since Bitcoin has a limited quantity, the price started rising when the number of users also started rising, till it reached $1000 when people started thinking of it as a good investment opportunity and on December 2017, the value of a single Bitcoin crossed $ 10000!

A coin with the symbol of Bitcoin. Bitcoin is a digital currency, so a physical form of it has no meaning.
A coin with the symbol of Bitcoin. Since Bitcoin is a digital currency, a coin like this has no practical purpose.

Personally, I feel than Ether will eventually take over Bitcoin as the dominant form of cryptocurrency as it is backed by a technology known as smart contracts rather than the only value that people give to it. But for the next 5–6 years Bitcoins will remain as the major player.

Bitcoin and ethereum coins.

If you want to know more about supply and demand, read my article “Diamond vs Water – What do you wanna be?” on pulse.

Resources to get started with Blockchain Technology

Must haves in your collection (Even if Blockchain technology is just a hobby for you)

  1. Blockchain Revolution: How the Technology Behind Bitcoin and Other Cryptocurrencies is Changing the World
  2. The Business Blockchain: Promise, Practice, and Application of the Next Internet Technology

Other resources

  1. Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics
  2. Learn Blockchain technology free of cost

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91 comments

  1. I learned a lot from your article…I had no idea what Bitcoin was. This was definitely a good read!

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  2. How interesting – I’ve heard this word floating around here and there but had no idea what it was until I read your post. Thanks – hope you continue to educate!

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  3. I have heard so much about Bitcoin but honestly it does make me very nervous to invest in something like this. The fact that you seem more invested in another cryptocurrency, the whole thing seems too insecure to feel safe in investing in it.

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  4. I don’t know too much about Bitcoin other than via a segment on the show Dark Net. It was truly fascinating to see who was using it and why, as well as where they store the servers and how they move them around.

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  5. I’ve learned that I can rely on your posts for timely, relevant, USEFUL information. Very cool. Thank you.

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  6. Great article. This is a topic I know I need to learn more about and you really helped me understand some good ways. Thank you.

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  7. I have tried hard to understand what Bitcoins are exactly but have always failed to. Loved reading your detailed article. It’s definitely insightful 🙂

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  8. Great Article. I was able to understand what bitcoin and looking forward to your next article regarding blockchain.

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  9. Very interesting knowledge about bitcoin and the price plus costing. Still I find it quite intriguing. Thanks for generously sharing your knowledge.

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