Bitcoin has broken its all-time high records many times and analysts predict the price will continually increase in the future. Its price has climbed by about 77% in the past month and 305% in the past year! However, Bitcoin is also a highly volatile asset, with steep and substantial price movements. So, how does Bitcoin overcome such threats to gain significant value over time? This article explores the key elements that enable Bitcoin to maintain a high market price.
What is Bitcoin?
It is essential first to understand Bitcoin and how it operates to determine how it gains value. Unlike fiat money, Bitcoin is a virtual currency without ties to any central authority or entity. Satoshi Nakamoto launched it in 2009 as a decentralized medium of exchange and a store of value. The main idea behind Bitcoin was to create a currency not subjected to political or institutional manipulations like paper currencies.
Bitcoin transactions are internet-based, meaning users can only access the currency online. Blockchain technology runs the Bitcoin network, validating all transactions on a digital public ledger. Miners verify the transactions and generate new tokens for Bitcoin. However, the mining incentives are reduced by half every four years through a process called Bitcoin halving.
How Bitcoin Gains Value
Like other commodities, Bitcoin’s value primarily depends on supply and demand economics. Here’s a breakdown of how Bitcoin’s supply and demand can enable it to be more valuable.
Supply depends on the number of new tokens generated and the number of Bitcoin owners willing to sell their coins. Bitcoin has a fixed market cap of 21 million tokens only, with more than 18 million already in circulation. Bitcoin’s fixed market cap is one of the critical elements enabling it to gain significant value over time.
The fixed market cap keeps Bitcoin scarce, contributing to limited supply. That further drives the demand and prices higher, allowing Bitcoin to maintain its lucrative value over time.
Bitcoin’s supply also depends on the halving process, reducing the number of rewards issued to miners by half every four years. That also the supply, thereby driving Bitcoin’s prices upwards. Experts predict Bitcoin’s value will have hit through the roof when miners reach the 21 million market cap. The prices increase as the supply becomes scarcer, allowing Bitcoin to gain a higher value over a prolonged period.
Bitcoin is more resilient to market manipulations than fiat currencies, but users can also influence its value. Savvy investors argue that buying and holding Bitcoins could induce scarcity and increased demand, impacting upward price movements.
The demand for cryptocurrencies such as Bitcoin depends on a wide range of factors. The market demand will increase based on Bitcoin’s usefulness in transactions. Today, Bitcoin facilitates prompt, secure, and cheaper cross-border transactions, making it a more efficient payment method than fiat currencies.
Many leading investment firms are increasingly adopting Bitcoin as a store of value to secure their assets against inflation. Besides, several crypto businesses such as Profit Revolution now exist, making Bitcoin more accessible to the general public. Mainstream financial institutions too now process crypto transactions, increasing their demand steadily.
The increasing Bitcoin demand and diminishing supply enable it to gain value over time. Bitcoin currently enjoys a positive perception, attracting thousands of users worldwide. That makes it seem like a more sustainable currency, increasing its demand and value over a prolonged period.
Cryptocurrencies primarily gain value based on the scale of their usage. Businesses and individuals increasingly want to own and use Bitcoin, significantly driving its demand. However, its supply continues to decrease over time.