Moctar BouraimaSince its creation in 2009, bitcoin has seen its price rise from pennies to unprecedented heights, capturing the world's attention. In November 2021, it even reached an all-time high of $68. However, it then experienced a drop in its price, and today (December 992) stands at around $2023.
This spectacular change in the price of bitcoin raises the following question: why is this currency so valuable? Above all, why does she continue to take it over time?
In this article, we will explore the fundamental and speculative factors that contribute to the unprecedented valuation of this cryptocurrency. We will also see why this is likely to continue in this way in the future.
The fundamental factors
Fundamental factors include the main factors that explain the growing interest of investors in Bitcoin.
Scarcity
One of the fundamental factors that contributes to the value of bitcoin is its scarcity. In fact, the number of bitcoins in circulation is limited to 21 million. This limit is similar to that of gold, which is another rare and valuable asset.
Furthermore, if scarcity is an important factor for Bitcoin, it is because it creates increasing demand. Indeed, the lower the number of bitcoins in circulation, the more the value of each bitcoin is likely to increase.
Security
Another fundamental factor that contributes to the value of bitcoin is its security. Bitcoin is a decentralized currency, meaning it is not subject to the control of a central authority. This decentralization therefore makes bitcoin more secure than traditional currencies.
The security of bitcoin is also an important factor, because it reassures investors and users. The more bitcoin is considered a secure currency, the more the demand for this currency continues to increase.
The portability of bitcoin
Finally, the portability of bitcoin is another factor that contributes to its value. As a digital currency, it can be transferred quickly and easily from one place to another. It is this portability that makes bitcoin more convenient than other currencies.
The portability of bitcoin is also an important factor, as it makes it more accessible and attractive to users. In fact, the more bitcoin is seen as a practical currency, the more demand for it is likely to increase.
Speculative factors
Apart from fundamental factors, Bitcoin is also influenced by other factors such as speculation and institutional interest.
The speculation
Speculation is one of the most important factors that explain the value of bitcoin. As bitcoin is a volatile currency, its price regularly experiences significant fluctuations. This volatility attracts speculators, who hope to make profits by buying and selling bitcoins.
Furthermore, speculators can be motivated by different factors. They are very interested in price movements, as well as volatility.
From there, we can say that speculation is an element that contributes to the rise in the price of bitcoin. However, it can also cause the price to fall if speculators withdraw from the market.
Institutional interest
Institutional interest is one of the factors that helps increase the value of bitcoin. Recently, institutional investors, such as pension funds and banks, have started to show interest in bitcoin.
Therefore, the massive investments of these institutions lead to a significant increase in the value of the currency.
The impact of public perception on the value of bitcoin
Bitcoin is a crypto that has experienced strong growth in recent years. This growth is due to a number of factors, including increasing demand, decreasing supply and increasing interest from large investors.
Therefore, the public perception also plays an important role in the value of bitcoin. Indeed, if people think that bitcoin is a safe bet and that it has a promising future, they have more confidence to invest, which helps to increase its value.
Public perception is therefore also an important element to take into account to understand the evolution of the value of bitcoin. Even more, what we call the network effect is very interesting to analyze from the perspective of Bitcoin. The more we use bitcoin, the more its perceived and real value increases because it makes the network ever more useful.
Parameters that influence public perception
Public perception is often influenced by a number of parameters, including:
- Media coverage : Media coverage of bitcoin has a significant impact on public perception. When the media speaks positively about bitcoin, it helps to build people's confidence in this crypto.
- Expert opinion : The opinion of experts, such as financial analysts, also influences public perception. If experts are positive about bitcoin, this reassures the most skeptical who invest in Bitcoin without fear.
- Personal experience : People's personal experience with bitcoin also has an impact on their perception of this cryptocurrency. When people have had a positive experience with bitcoin, it builds their trust in this crypto.
The volatility of bitcoin and its positive influence on its valuation
Since its creation, bitcoin has experienced extreme volatility, with price variations of up to several hundred percent in a matter of days or weeks.
This volatility is often considered as an obstacle to its valuation. Indeed, it makes investing in this currency risky and unpredictable. However, some experts believe that bitcoin's volatility can actually have a positive influence on its valuation.
A safe haven asset
The volatility of bitcoin actually gives it the status of a safe haven asset. In other words, it is an asset whose value tends to increase in times of crisis. Indeed, when traditional financial markets are unstable, investors can turn to safer assets, such as gold or bitcoin.
This trend has been observed several times, notably after the 2008 financial crisis and during the COVID-19 pandemic. In 2020, bitcoin also saw a sharp price rise, while global stock markets were falling.
A speculative asset
The volatility of bitcoin can also give it the status of a speculative asset. In other words, an asset whose value is likely to increase quickly, but also to decrease quickly. As a result, speculative investors are sometimes willing to take high risks in the hope of making large profits.
This type of investor is attracted to the volatility of bitcoin because it offers the opportunity to make colossal gains in a short period of time. However, it is important to note that speculation is a risky activity, which can lead to phenomenal losses.
A reserve currency
If bitcoin manages to stabilize and reduce its volatility, it could become a reserve currency, that is, a currency used by central banks and financial institutions as a store of value.
However, it is clear that the volatility of bitcoin is an obstacle to its adoption as a reserve currency. However, if bitcoin manages to reduce its volatility, it could become a credible alternative to traditional currencies.
The influence of technological and regulatory developments on the credibility of Bitcoin
The technological and regulatory influence on Bitcoin has strengthened the credibility of this cryptocurrency by enabling secure and transparent transactions.
Bitcoin technological developments
The technology of time chain, on which bitcoin is based, is still in development. Therefore, it is possible that technological innovations will improve the performance, security and efficiency of this crypto. These innovations will therefore have a positive impact on the value of BTC, making it more attractive to users and investors.
For example, increasing transaction speeds may make bitcoin more convenient for everyday payments. Also, improving security will make it more attractive to institutional investors. Even better, increasing efficiency will reduce transaction costs, making bitcoin more accessible to more people.
Typically, the emergence of the Lightning Network has made bitcoin more scalable and practical than ever.
Growing adoption around the world
This is certainly the point that will strongly influence the future price of bitcoin. Indeed, the more bitcoin is used around the world, the more its price is likely to increase in value. For what? For its simple reason that the greater the demand, the higher the price can rise because the supply of bitcoin is limited.
Thus, the appearance of circular villages focused on Bitcoin in El Salvador, Brazil and South Africa are concrete and empirical examples of the ever-increasing use of bitcoin.
Regulatory developments on Bitcoin
Cryptocurrency regulations are evolving in many countries. With this in mind, it is possible that regulations will become stricter. This, particularly in countries where authorities are concerned about the volatility of cryptocurrencies, the risk of money laundering and the financing of terrorism.
However, stricter regulation could negatively impact the value of bitcoin, reducing investor and user confidence. However, it is also possible that laws will contribute to the stability of the cryptocurrency market, which will have a positive impact on the value of bitcoin.
final thoughts
The value of bitcoin is measured by a set of factors, which can be classified into two categories: fundamental factors and speculative factors.
Fundamental factors are those related to the nature of bitcoin itself, such as its scarcity, security and utility. They support a rise in the value of bitcoin because it creates increasing demand for the currency. So, Cathie Wood, the current CEO of Ark Investi predicts that bitcoin will be worth $600,000 in the years to come.
On the other hand, speculative factors are those related to investor sentiment, such as investor sentiment and speculation. These factors are more volatile and can influence the value of bitcoin significantly.
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Note: There is no financial advice in this or any other article on this site. This is information of which you are the sole judge and master. Be responsible with your investments and only invest as much as you are willing to lose.
