Value of Bitcoin
Unlike traditional assets like Gold and Oil or traditional currencies like the Dollar and Euro, Bitcoin isn’t backed up by any government or a group of bodies that work together to stabilize and maintain its value. In turn, this has given Bitcoin the freedom to oscillate widely, sometimes even too wildly and beyond any reasonable explanations.
When Bitcoin was first released, it didn’t hold any value of its own. During its 2017 peak, it reached a value of $20,000 per one coin. So, how does something so new grow so fast in value that it costs more than gold? Well, to learn more about how Bitcoin’s price changes and what factors influence its value, one only needs to take a look at Bitcoin’s history.
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The First Ascribed Value
When Bitcoin was released in January 2009, it didn’t have any value at all. Around this time, the cryptocurrency was mostly traded between early enthusiasts for fun and not to buy anything or earn money from it. One of the first to ascribe a value to Bitcoin was the New Liberty Standard, which offered to sell Bitcoin through PayPal for a price of 1,578 BTC for $1, or around $0.00063 per single coin.
Another memorable example of how low Bitcoin was valued in the early days was a 2010 transaction made by a user on the BitcoinTalk forum who paid 10,000 BTC for two pizzas from Papa John’s ordered by another user. This was the first use of Bitcoin to buy a material item and the story has become legendary in Bitcoin circles.
And how can it not be, considering 10,000 BTC was sold at an estimated $0.003 per coin? In today’s value, that batch of Bitcoins would have been worth billions.
Price of Bitcoin through History
One of the first examples of progress in Bitcoin’s price movements driven by real interest from users came in July 2010, when Bitcoin’s price jumped by 900% from $0.008 to $0.08. This jump was in great part owed to a genuine interest in the new invention driven by a feature article about the release of Bitcoin 0.3 on the tech website slashdot.org.
But it took around 8 more months for the first important price milestone to be reached, when Bitcoin achieved parity with the dollar (1BTC = $1) in February 2011, driven by interest at the Mt.Gox exchange. Several months later, the price jumped even further to $9 and then $31 after a Gawker article on the use of Bitcoin in an underground drug marketplace called the Silk Road was published.
During the next two years, a combination of media coverage, Bitcoin’s acceptance by organizations like the Internet Archive and Bitcoin Foundation and online merchants and sites like OKCupid, but also the increase in trades from Asian markets, helped drive the price even further. And with the approval from the People’s Bank of China, Bitcoin quickly grew to a peak of over $1,200 by November 2013.
Price Slide and New Highs
One of the biggest corrections to Bitcoin’s price came after the shutdown of the now infamous Mt.Gox exchange which abruptly ceased withdrawals at the start of 2014 and then shut its doors the following months due to an alleged hack that resulted in 744,000 BTC being stolen from the exchange.
However, it’s not just Mt.Gox’s closure that contributed to the decline, but a series of events like the PBOC’s (People’s Bank of China) reported order to local banks to stop working with exchanges and the subsequent alleged ban on Bitcoin in the country, which drove the price down during the next year, eventually allowing it to slide to $200 in the spring of 2015.
Thus, the real turnaround for Bitcoin came in 2017, which was a year of global Bitcoin hype. At the start of the year, in January, Bitcoin’s price broke the $1,000 range for the first time in 3 years. In the following months until August the price grew beyond $2,500 thanks to a large increase in interest, particularly from the Japanese and South Korean markets.
And after a much-publicized split of Bitcoin’s blockchain that resulted in the creation of Bitcoin Cash, Bitcoin only continued to grow and reached a peak before Christmas on increased buying interest, touching a record price of $20,000. The peak was short-lived, though, as Bitcoin quickly reversed to $11,000 near the end of January next year.
Which Factors Influence the Value of Bitcoin?
While many have been known to pinpoint the fall or increase of Bitcoin’s price to one major factor, the reality is that Bitcoin’s price is influenced by more than just one agent. The following are some of the key factors which have played a combined role in the public’s perception and interest in Bitcoin and subsequently its price.
Economic Uncertainty
Uncertainty about the future of local economies or a weakening domestic currency has been known to be a positive drive for Bitcoin’s price growth. Brexit in the UK and Trump’s win in the US Presidential elections have both contributed to a jump in Bitcoin’s price, particularly when the local currency plunged following the events.
Other notable examples are the decline of the Venezuelan Bolivar, which drove many people in the country to invest in Bitcoin and to start mining the cryptocurrency, but also India’s demonetization, which triggered a similar local interest in the cryptocurrency.
Bitcoin Regulations
Naturally, when a government announces a crackdown on Bitcoin bigger sell-offs in that market can be expected. One recent example is South Korea, where an option to ban Bitcoin trading was publicly discussed and caused a bigger selling wave at the start of 2018. Chinese crackdowns on mining and trading have had a similar effect thus far.
News & Chain Reactions
The media have played just as important a role in building the hype around Bitcoin as they did in unintentionally spreading uncertainty among holders. Sometimes, or so it seems, it takes only a mention of a tougher regulatory policy to convince some people to sell. And when many decide to sell at the same time, it could lead to a bigger chain reaction that takes the price down.
Of course, no one can say with certainty that news is enough to drive the price downwards. However, for many people who have arrived late at the market and invested in Bitcoin when it was valued high, seeing the price decline faster can logically cause fear and lead them to sell, even at times when a correction was expected and momentary.
Shoppers and Investor Interest
With the approval of Bitcoin’s use at retailers in Japan, the cryptocurrency understandably saw a spike. Similar trends have been observed in the past as Bitcoin’s use continued to expand. At the same time, interest by big investors like banks or financial magnates has also lent credibility to Bitcoin that inspired others to invest and by that help drive its price upwards.