How much is a bitcoin worth? How and who determines its price?

How do you determine how much a Bitcoin is worth?

If you had bought €2010 of Bitcoin in January 100 and sold it in November 2013, the value of the sale would have been €120.000.000. Not bad at all, right? Go from €100 to €120 million in just 3 years. And all this with an investment of laughter, it seems like a dream. But the truth is that with Bitcoin and its price increases it has been possible. In fact, in 2021 bitcoin has managed to break the barrier of US$60.000.

Now surely you will ask yourself: How do you determine how much a Bitcoin costs? 

As we have explained, Bitcoin is a distributed financial system, created in 2009 by a programmer under the pseudonym of Satoshi Nakamoto. It is not issued by any government or company (despite the fact that it is increasingly supported by them) and it is considered legal tender by very few countries to date (although it is beginning to fit into existing legal frameworks, such as the sentence that determines to the Bitcoin exempt from VAT throughout Europe or the Bitcoin Law that made it legal tender in El Salvador).

Bitcoin is powerful and a masterpiece of engineering (or as Bill Gates says of him: "a technological feat"). But, how much is a Bitcoin worth? Why does its price go up and down so many times a day? Who determines its value? How safe is that price? Is it a scam, ponzi or strange mechanism to steal my money? money?

Bitcoin as money

As we all know, money is what is accepted as a means of payment for a good or service. Money usually serves as a unit of account and store of value among other characteristics.

But… wait! If a currency is not accepted as a means of payment, no matter how great it is as a unit of account, and all you want… is it worth anything? It is because of that the value of money is not linked to its acceptance, but it is directly related.

El fiat money (name of the official fiat currency issued by a government, such as euros or dollars) as we know it today, are nothing more than bills and coins without their own value. Since 1971 they are not backed by gold value. They are endorsed and certified only by their issuing entities.

Currently, it is governments, through imposed laws, who determine what type of money is legal tender. But it is other entities, such as the central banks and the mint houses (CECA), which are in charge of everything. First of regulate and control the monetary policy of an economy. Second, of create coins and bills on demand and the need to have physical and electronic money. They can print and mint as much as they want and when they want.

It doesn't matter which time frame of the story you choose, this model has proven to fail time and time again. Just look back at what has happened during the XNUMXst century: financial crises, corralitos, uncontrolled inflation, etc.

The currencies issued by central banks are necessary so that they can apply, in an opaque way, specific economic policies. This leaves the fate of millions of people to the whim of a few. With a click, literally they can generate new millions of euros on a computer that devalue the purchasing power of people.

And it is that, as we already explained, Bitcoin has better properties than fiat money. This is impossible with Bitcoin and other virtual currencies or cryptocurrencies, since the control of the issuance is decentralized and no one controls it.

Offer and demand

But Who determines the price of a Bitcoin (BTC)? It is determined by everyone who wants to participate in your buying and selling process, in short: your users. Although multiple factors influence, ultimately, its use is what always determines its price.

Bitcoin trading allows you to distribute it and profit from it. As in other scenarios, the producers (in the case of Bitcoin: the miners) can propose a price when selling their bitcoins to the interested parties, reaching agreements. Imagine the typical deals between two people, one proposes a price and if the other, between haggling, is willing to accept it, then the transaction takes place.

This can be done on the street, but in a computerized world like ours, it is more common to see this type of deal on specialized online platforms and optimized for it. The known «Bitcoin trading platforms«.

Unlike a buy-sell website, which has its prices stipulated as in Bit2Me, in a trading platform anyone can post a purchase proposal at the desired price.

In the trading markets you also have no obligation to buy a complete Bitcoin, you can buy small parts of it. Remember that 1 Bitcoin is made up of 100 million “cents” (satoshis). If a Bitcoin is worth €1000, you can buy 1 euro if you want.

On these platforms, when another sales offer matches yours, automatically, the transaction is made. This purchase-sale operation makes, only on that platform, the price of Bitcoin is set at the price of the exchange made.

This that we have just described is the same process in which all the commodities that exist are traded. And it happens tens, hundreds or thousands of times per day, sometimes with great variations.

This type of operations require a minimum of study and previous tasks, which although free of charge, not all users are willing to do.

For many users this part of Bitcoin is not attractive and even repels them, since it seems that it does not contribute anything and most of the time it is just speculation. Buy low and sell high. But the truth is that this model is causing Bitcoin to spread and reach more sites.

The price of Bitcoin has been changing over time and is based, roughly, on the confidence of its users, in its usefulness and its popularity.

It means that, in 2010, the value of a Bitcoin was less than one euro cent, as many still doubted its security, efficiency and, ultimately, its acceptance.

This operation of determining the price through the purchase - sale is not different from what occurs in other sectors: legal tender currencies (Forex), raw materials, bonds, ... But in Bitcoin it has a double objective, since this at the same time At the same time, since it is something digital, it has been key to its capillarization, spreading rapidly.

The value of a Bitcoin, like anything you can imagine, fluctuates every second. There is a long way. What would happen to the price of Bitcoin if tomorrow Amazon decides to accept it as a means of payment? Nobody knows what will happen, not even if it will happen, but it is possible that it will happen just like with thousands of large companies, countries,...

There is no official or unique price for bitcoin

Once the above has been explained, you will understand that, since there is not a single platform in the world to trade (there are many and each one can have its own operations), there is no world or single price of Bitcoin.

However, they tend to equate. When there are very large differences in the prices of two exchange houses, there are those who take the opportunity to buy in the exchange house with a cheap price and sell in the one with a high price. This, which is something that is done daily, is known as arbitration and causes the prices are the same in most exchange houses in a few minutes.

However, it does not occur in all places, especially in places with great complexity of access. For example, in Africa, where it is more difficult to access Bitcoins, local users can exchange them at a very different price from Europe and be equally attractive because it is useful for the local community to trade at that price.

Bitcoin as a means of payment

Something curious about Bitcoin, despite not having changed its source code excessively since its inception, is that it went unnoticed for a long time. Furthermore, the few who did pay attention to it did not take it seriously enough to be a firm alternative to the traditional financial system.

For more than a year a Bitcoin was worth absolutely nothing. It was a currency that very few users, curious or visionaries in their entirety, sent as a reward for useful or funny answers in forums.

The first price of a Bitcoin in history occurred on May 22 of the 2010. This was on the forum BitcoinTalk, where the user jerks decided to buy the user two pizzas with his credit card Laszlo in exchange for 10,000 bitcoins, possibly with an exchange rate of 1BTC = $ 0.003.

This simple fact was the spark that ignited an accelerated process of revaluation. The then holders of bitcoins realized that they could access goods or services with their current cryptocurrencies, to date without economic value, making it clear that Bitcoin definitely did have the capacity to become what its ideologue and creator, Satoshi Nakamoto, had proposed: a alternative and improved world financial system.

This caused many people to sell previously worthless bitcoins for a few euros. Go figure! You have 10.000 bitcoins that you have obtained for free or for one euro, and suddenly you can obtain €100 for all of them.

Only some visionaries (or, surely, mostly confused) could find themselves in situations like those of 2013, with millions of euros in their hands or trying to find a computer with thousands of bitcoins that had been thrown away by mistake. Despite that, 2013 was a year of many new millionaires thanks to Bitcoin.

Bitcoin price history

After 10 years of its creation, Bitcoin became It is also characterized by its high volatility.. Throughout its short, but intense existence, a single Bitcoin has gone from being worth literally nothing to almost 66.000 US dollars. The exchanges or cryptocurrency markets can show us a very detailed history of how the BTC/USD pair has evolved during all this time. All this information can help us choose the best time to invest in Bitcoin.

Halving

As we have already explained in the article: What is mining bitcoins?, Bitcoins are created as a reward to miners. The reward, stipulated in the open source of Bitcoin, is divided in half every 210.000 blocks, approximately 4 years, if one takes into account that each block is mined every 10 minutes on average.

This event of dividing the reward in half every 4 years or so is known as Halving. All Bitcoin that exists was owned, first of all, by a miner and it is the way in which the 21 million bitcoins that will exist.

There are those who believe that after a halving the price of bitcoin in the markets rises due to the cause - effect it generates in the ecosystem.

External events

In a supply and demand system, every internal and external event has an effect on price. There are many positive and negative events that have occurred in Bitcoin, for example one of the most dramatic was the case of MT. gox, which to this day is still unresolved: the largest and most famous Bitcoin exchange, MT. gox, shows a blank page on its website on February 24, 2014, leaving a debt of more than 850.000 Bitcoin to its users, valued at more than 450 million US dollars at the time.

Or in 2022, with the fall of the FTX exchange due to its bad practices with its clients' funds. Previously, Celsius or Alameda Research had also fallen, creating a year, 2022, of panic in the market.

These events of fraud and theft of cryptocurrencies in specialized markets they leave a mark on traders, and consequently on the price of Bitcoin, normally in proportion to the echo that the media makes of the event.

These events, which They have little to do with Bitcoin and its technology, affect their reputation, especially when the media consciously or unconsciously relate it to failures in Bitcoin without explaining in detail what happened.

The miners

What influence do miners have on the bitcoin price? Miners are an essential piece in the ecosystem and also its generalized position can produce rises or falls in the price in some way. But more than fixing prices, normally, the consequences are observed in them. Just look at the active node map, and see how they disappear nodes. when the price of Bitcoin is low. Many of them simply log out because the reward is not enough to break even and make a profit.

The miners are related to the price by pure logic. The price of each Bitcoin is represented by its mining value. But its mining value is not always the same. Due to the dynamic complexity in mining Bitcoin, it can cost more or less depending on the competition. Minar has high electrical consumption and these consumptions have a cost. In this way, if demand suddenly skyrockets, mining will be so profitable that many other miners will want to earn money, and by starting to mine they increase the complexity of mining, with which the cost will once again be close to what people are willing. to give for each Bitcoin, otherwise it would not be profitable.

This model generates a push and pull that means that the price of Bitcoin is always backed by its cost of mining, so Bitcoin has intrinsic value, and is not fiat.

Bitcoin is characterized by having, and it is one of its best assets, the most powerful computer network on the planet. What would happen if a large part of the mining nodes disappeared overnight? Would this affect your price?

Technically, the network would readjust instantly and follow its normal course, but possibly a similar event would affect the price, due at least to the media echo generated.

Halvings are curious events, since in theory they eliminate many miners with a stroke of the pen because the cost of mining does not compensate, unless the price of Bitcoin doubles.

But the reality is not so simple. Of course the miners want high prices, their rewards and commissions are received in Bitcoins, but on the other hand without miners the Bitcoin network loses strength, which in turn, and after a "butterfly effect", causes the price of Bitcoin to devalue.

We must also remember that a Bitcoin transaction has a commission, and miners can always determine which transactions they accept based on the fee. In terms of decisions and policies they can determine the price of Bitcoin.

The volatility

You're probably wondering as if such a volatile coin can work. If something characterizes and scares Bitcoin is just that, volatility. This is what increases the price of Bitcoin, or lowers it. This means that today I can have € 100 and tomorrow I can have € 80 or € 120. Surely you ask yourself: How can such a system be reliable?

It is very important to understand that Bitcoin was born in 2009. Any new value exchange suffers in its first few years of volatility, and Bitcoin is not outside of it. The volatility stems from speculation. Every day, thousands of people try to buy low and sell high. When a person buys and later sells, they are making it reach other hands, which is repeated millions of times, together with media activity, generates millions of new users to reach it. This is just what is happening.

Something that at first seems absurd and pure speculation generates its propagation, along with it the joys and sorrows of speculative decisions on exchange platforms. Would Bitcoin have become so famous if people didn't see it as a means of investment? It has many advantages, but to really make sense it has to be a global system. To achieve this, it has to go through a few years of expansion. One that will allow its users to enjoy its full potential.

Bitcoin price future

It is not a simple task. It is of little use to analyze the current and historical price if it is not to observe a trend throughout its history.

Although Bitcoin uses technology superior to what governments and banks use, no one knows what may happen in the future. We do not know how technology will evolve, energy consumption...

3 out of 4 Bitcoins that will ever exist are already on the market. Here you can see a real graph of how they have been issued and how many bitcoins are in circulation.

Furthermore, estimates indicate that 3 out of 4 bitcoins are being used as savings, as a store of value. If you also count that many have been blocked forever due to loss of private keys. With this, the result of actual Bitcoins that can be used on a day-to-day basis is even more limited.

Bitcoin's detractors argue that it is something that could disappear at any time. But how do you magically make something that millions of people have disappear and every month it reaches new users exponentially? An open, transparent system, with some of the best minds on the planet working on it, many for pleasure.

Bitcoin, when analyzed over time you see that it seems to be much stronger, fair and powerful for the user even than the fiat money of a country.

Let's remember that a Bitcoin is divisible, and has 100 million satoshis (its smallest unit), and a future could come where 1 satoshi is equated with 1 euro cent and be worth the million euros that we previously mentioned, but beware! Bitcoin works by consensus, and that number of decimal places could be increased if it were necessary and the majority of the nodes agreed.

keep calm and relax

Anyway, BTC will become worth what people are willing to pay for it. This is as we have mentioned, because the price of bitcoin is determined by the trust of its users. But also by supply and demand in the exchange markets.

Hundreds of stores currently accept Bitcoin as a means of payment and with Bit2MeCommerce Cryptocurrency payments can be integrated into electronic and physical stores.