Skeptics have questioned Bitcoin Value fluctuation and strived to rationalize its valuation based on its mathematical and economic basis.
The decentralized nature of Bitcoin means that it does not follow government monetary policy, and it isn’t backed by a government or underlying asset. This creates skepticism among investors and consumers who value the price stability signals fiat currencies enjoy as a result of government policies and support.
Supply and Demand for Bitcoin
The Bitcoin Value is determined in the same way that the value of the U.S. dollar is determined: supply and demand. Like fiat currency, when the demand for bitcoin increases, the price increases. When demand for bitcoin falls, the price falls.
On the supply side, Bitcoin is a unique asset in that its new supply schedule is absolutely inelastic; it is completely immune to fluctuations in demand. When most goods, including fiat currency and gold, experience a rise in demand, producers react by increasing production and returning prices to an equilibrium. When demand for bitcoin rises, thanks to the difficulty adjustment, production of new bitcoin does not rise, hence the rise in bitcoin value.
To analyze the effect of scarcity on an asset’s price, the stock-to-flow (S2F) model is commonly used. According to the current production rate, a stock-to-flow ratio would take several years to produce the current stock. The Stock-to-flow ratio is inversely proportional to the inflation rate. Stock-to-flow models predict that higher stock-to-flow ratios will result in higher prices.
Effect of news on Bitcoin Value
One of the reasons why cryptocurrencies are so sensitive to good or bad news is because, unlike traditional currencies, they are not regulated by any authority. Therefore, any popular sentiment or point of view created due to positive or negative news directly affects their value.
Since cryptocurrencies are usually mass-managed by people working in all parts of the globe in real-time, popularity and impression play great roles in increasing or decreasing their value. Here are some possible coincidences that make this theory a palpable fact.
2017 was probably the most exciting and adrenaline-evoking year for people invested in the world’s most popular cryptocurrency, Bitcoin.
Therefore, it is very important to beware of where you are getting your crypto news from. The following sources provide reliable information about news and fundamentals:
Reliable crypto news sources
- CoinDesk: CoinDesk was launched in May 2013. CoinDesk provides news and articles, in addition to recordings, instructive materials, bulletins, and event inclusions. The CoinDesk brand is considered an innovator in blockchain and digital currency news. The fact that it holds the Annual Consensus Summit every May reinforces this standing.
- CoinTelegraph : CoinTelegraph is an exceptionally respected site that was established in 2013. The site offers news on digital currency, blockchain, business, innovation, and administrative issues. Market investigation and well-qualified assessment are additionally given. The site additionally offers a considerable segment of instructive articles. The creators and supervisory group are worldwide appropriated, giving assessment that is global in scope.
- Crypto Media Network : Crypto Media Network is an unbiased media platform and community comprised exclusively of the latest stories from professional writers that value ethical, authentic journalism. We believe that good journalism comes from good journalists.
- NewsBTC : NewsBTC gives Bitcoin news, specialized investigation, and market conjectures for Bitcoin and altcoins. The site has been in presence since October 2013. The site began instructing perusers about Bitcoin value and its potential impacts on the conventional monetary framework however have developed to incorporate an entire cluster of computerized media inclusion of altcoins, crowdfunding, administrative news, and the intermingling of innovations like the blockchain, IoT, AI, and that’s only the tip of the iceberg.
The Bitcoin halving reduces the block subsidy by half every four years, reducing the amount of new bitcoin entering the market, increasing the stock-to-flow ratio, and making bitcoin even more scarce. If the stock-to-flow model is applied to Bitcoin, this should trigger a rise in Bitcoin Value, and indeed, each past halving has triggered a dramatic price rise in the following months. However, whether these price appreciations validate the stock-to-flow model is still a topic of much disagreement.
Inflation and Deflation
As money supply or velocity increases, prices rise and currency value declines. Inflation is a result when currency value decreases. Bitcoin’s finite supply makes it deflationary. Because bitcoin is limited, it is safe from hyperinflation. Governments’ ability to print an unlimited amount of currency has led to periods of hyperinflation during which many fiat currencies have lost value.
The concern over deflationary spirals is unfounded or unsupported by economists; supply and demand have always been able to correct deflationary events in bitcoin and fiat currency. Furthermore, Bitcoin’s finite supply makes it an extremely secure long-term store of value, comparable and in some cases even more advantageous than gold.