Demand vs. Supply of Bitcoins

Supply and demand, public mood, the news cycle, market events, scarcity, and other economic factors all influence the price of bitcoins , just as they do any other currency or investment. If you're unfamiliar with the notion, the Law of Supply and Demand sells three fundamental beliefs in a nutshell:

  • The law of supply and demand states that as a product's price rises, so makes its demand.
  • The law of supply states that as the price of an economic commodity rises, sellers will offer more of it.
  • The market price and volume of a given commodity are determined by where the demand and supply meet.

What does this mean in the context of Bitcoin's price? These notions have a significant impact on two essential aspects of the price of Bitcoin:

Market Supply of Bitcoin

The amount of bitcoin available for sale on the market determines the market supply. Because sellers can choose their price for selling bitcoin, the number of buyers must outnumber the number of sellers at any given  time for the price of bitcoin to rise.

The bitcoin supply is regulated by algorithms on the blockchain that operate the currency - about 6.25 bitcoins are minted every 10 minutes .

When miners process blocks of transactions, new Bitcoin is created and presented to the market, as we all know. Miners are responsible for validating transactions by solving cryptographic challenges . The award will go to the first person who successfully mines a block. A new block is uploaded to the blockchain every ten minutes. Only then will new coins be able to be created.

All transactions on the Bitcoin network have followed the same protocol since Satoshi Nakamoto mined the first block, known as the Genesis Block . However, the number of reward miners earn every block changes every four years.

When validating blocks , this is a process in which the miners' payouts are halved. Half of Bitcoin takes place every 210,000 mined blocks . This will keep happening until the network runs out of coins to create. Many people, on the other hand, are unaware that this process should slow down over time. As a result, demand for BTC may outstrip supply; in that case, the price of bitcoin can be raised.

The price of bitcoin tends to rise after every halving . The first occurred in 2012 when the price jumped from $ 11 to $ 1,000 in a year. According to CoinMarketCap , the price then jumped from $ 430 to $ 1,000 by the end of 2016. The latest halving occurred in 2020, and its worth climbed from 5,000 to 30,000 USD in the same year.

Then there's Bitcoin's supply limit. Bitcoin was created with a cap of 21 million BTC by Satoshi Nakamoto. Presently about 18.6 million BTC have been mined. 

Miners will no longer be rewarded with a new BTC for verifying transactions once that cap is reached. When it happens, the four-year halving of block rewards may not affect Bitcoin's value. Instead, aspects like practicality and utility in everyday life will be prioritized.

Market Demand For Bitcoin

The number of purchasers for Bitcoin at any given time determines the market demand . As more people buy Bitcoin , the price of the currency rises . When all of the sell orders at a certain price are filled, the price increases to the next lowest sell order price .

A variety of factors fuels the demand for Bitcoin. Here's a rundown of some of the most important influences on Bitcoin demand:

Competing Cryptocurrencies

Bitcoin is, without a doubt the most well-known and recognized cryptocurrency in the world. However, thousands of other cryptocurrencies are vying for our attention, like Ethereum (ETH) and Dogecoin (DOGE).

The crowded market allows for more diversification in a portfolio, which appeals to investors. Bitcoin's value, on the other hand, can remain quite stable due to its competitiveness . It's safe to say that the price of Bitcoin would be drastically different if it were the only cryptocurrency available.

The Media; news about Bitcoin

The media improves people's grasp of Bitcoin's core functions , attracting more people to the concept. Imagine you come across an internet news item that highlights the benefits of utilizing Bitcoin, and after reading it, you feel entirely enlightened. It's safe to expect that you'll tell your friends and family about it and that they'll tell their friends and family.

The media has a significant role in boosting Bitcoin market demand . As the price of Bitcoin climbs, more media outlets are covering the commodity, and market demand for Bitcoin rises.

Adoption and Utility of Bitcoin

User adoption influences Bitcoin's price. High demand for the currency can increase its value, while a low demand can decrease its value. Governments, institutional investors, and many multinational corporations have also adopted the use of bitcoins, which has increased its demand.

In 2010, the value of a BTC did not even reach a dollar, as most still did not perceive the usefulness of the coin and doubted its safety, acceptance, and efficiency. Today the panorama is very different. With the price of bitcoin surpassing $ 64,000 at the time of writing, more and more people are making use of this digital asset every day. 

This video gives you more insight about the factors that infleunce the price of bitcoins:

Government Regulations

Government regulations and initiatives are also crucial factors that can influence the price of Bitcoin. Because the Bitcoin industry has snowballed, regulatory bodies have begun to pay more attention to it. 

Governments are actively monitoring money laundering, terrorism financing, and other illegal activities linked to Bitcoin. Virtual currency businesses must now register with the Federal Financial Intelligence Unit in Canada, according to amendments to the "Proceeds of Crime and Terrorist Financing Act."

According to a study , the majority of countries are unrestricted in their development of Bitcoin, with 67% of 126 countries believing Bitcoin is legal and 19% neutral . On the other hand, only 8% of the 126 countries consider Bitcoin to be illegal. The reaction of regulatory bodies has the potential to influence whether Bitcoin's value rises or falls.

Even though bitcoin is a currency that any government does not control, The price of Bitcoin is subject to government initiatives that affect it directly, even though it is a decentralized currency that is not dependent on any government. This was the situation in China, which issued a series of regulations to prevent cryptocurrency mining in May 2021.

According to a Coin Metrics analysis, the price of bitcoin dropped from $ 45,000 to $ 30,000 just a few days following the Chinese government's declaration. These actions damaged investor and user confidence in BTC and caused a decline in the hash rate due to a reduction in the number of miners connected to the network. All of this resulted in a price drop as a result of decreased demand and increased supply . In other words, in the face of uncertainty, more people sold Bitcoin than bought it.

The introduction of bitcoin as a legal tender in El Salvador is another example of how the government's initiative can drive demand. The more governments realize the cryptocurrency's potential, the greater its reputation and, as a result, the price of bitcoin climbs.

Opinions of Influencers on Bitcoin

Influencers or tech behemoths like Elon Musk can have a huge impact on Bitcoin's price. The crypto market can be sparked by a single tweet from the man behind Tesla. Musk said in March of this year that his company, Tesla, will accept bitcoin as a form of payment. As a result, according to CoinMarketCap data, the price of bitcoin rose from $46,000 at the end of February to a record high of $ 61,000 on March 13 .

However, Musk declared a few months ago that, due to environmental concerns, Tesla would no longer accept Bitcoin payments. As a result, the price of Bitcoin has dropped by around 15% . On June 3, 2021, Musk tweeted another meme about breaking up with Bitcoin, and the price of Bitcoin plunged another 5%. The price of Bitcoin plummeted from $ 57,000 to $ 49,000 on the same day. 

Again, Musk said Tesla That would accept Bitcoin payments ounces cryptocurrency miners move to "acceptable renewable energy usage" and Bitcoin values rose by 8%.

This is just one example of the power that a few people wield over the cryptocurrency market , and it relates to the preceding argument about people's belief in bitcoin.

Fiat currency inflation

When a country's currency is depreciating, consumers demand Bitcoin more. This is because Bitcoin is considerably less likely to fall in value than a currency experiencing inflation, particularly if the country is experiencing hyperinflation.

Pandemic and External Factors

Some events have nothing to do with Bitcoin but affect its supply and demand. This is exactly what happened when the COVID-19 pandemic was declared in March 2020. This occurrence had a substantial negative impact on the global economy, including the price of bitcoin. On March 15, the coin was barely worth $5,000, according to CoinMarketCap data.

And it's because, in times of crisis, people seek refuge in fiat currencies, dismissing assets that don't provide them with immediate cash. Demand declined as a result, while supply increased.

Who Controls the Price of Bitcoin?

No single person can meaningfully influence Bitcoin's price. Bitcoin's price is determined by the total number of buy and sell orders placed by all crypto investors in the market. However, certain crypto players have a greater impact on Bitcoin's price than others.

Whales – those who own a lot of bitcoin- can drive prices up and down by placing massive buy and sell orders. According to Bitinfo, only a few crypto wallets hold the majority of the Bitcoin in circulation: 99.5% of Bitcoin wallets have a balance of ned. The higher your demand and the lower your supply, the higher the perceived value. Other factors also play a role, such as government action, external events, reputation, and perceived usefulness, trust, and the opinion of influential figures in the ecosystem.

Thus, being a decentralized currency, bitcoin is not controlled by government entities, so it is people who, in a certain way, decide its value based on multiple aspects. This is perceived in exchanges, where the value of an asset depends on the price that the buyer is willing to pay and the price that the seller is willing to accept. 

Final Thoughts

Even though the future of individual cryptocurrencies is uncertain, the industry as a whole is developing. It's practically impossible to predict the price of individual cryptocurrencies, but Bitcoin's recent Strength Indicator reveals that the cryptocurrency is here to stay, at least for the next few years. 

We should expect a price hike and stabilization with more assurance. Bitcoin has opened up a world of possibilities and opportunities, and its full potential has yet to be realized. Bitcoin has come a long way in the last ten years, and it will be fascinating to watch where it will be in the next ten years, as well as the genuine value it will provide.