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Why is Bitcoin so expensive?

2016-05-27 00:00:00

In 2009, on January 3, the world saw the first block of a new and unique cryptocurrency Bitcoin. It was on this day that the first 50 coins were generated. Cryptocurrency sales began a year later. On May 22, 2010, 10,000 Bitcoin were purchased for a symbolic $ 25. Over the next five days, the Bitcoin rate increased by an order of magnitude and continued to grow. Today the cryptocurrency rate is 450 Bitcoin for 1 dollar. 

So why is Bitcoin so expensive? What caused its popularity? What determines the price of a cryptocurrency? Will Bitcoin always be expensive? These and other questions plague millions of investors around the planet. However, the popularity of cryptocurrency is steadily growing among average ordinary people, for whom the Internet has become the main form of earning or a means of earning money at their leisure.

There is no doubt that most of the population is attracted to cryptocurrencies by their high price and the stability with which quotations are growing in relation to the main fiduciary monetary units. Bitcoin, not so well known digital money until recently, has turned into a means of guaranteeing the preservation of savings. Although, they are gradually becoming a common currency used for everyday financial settlements, the purchase of various goods and services online.

 

Reasons for the growth rate

The jump in the Bitcoin exchange rate is incredible. From 0.0025 dollars per 1 Bitcoin, the rate has grown almost 20,000 times. At the same time, history knows peaks, when about 1000 US dollars and more were given for one coin. What is the secret of cryptocurrency pricing? Why is Bitcoin expensive and continues to hold its ground? Will it still be so expensive in the future? 

There are several reasons:

  1. The emission of coins is limited to 21 million Bitcoin. This means that it will not work out endlessly to issue cryptocurrency, and it becomes a scarce commodity. What happens to ordinary money when the central bank turns on the printing press? Money falls in price, inflation rises. Bitcoin coins are not afraid of cheapening problems. The closer to the upper emission limit, the more valuable the purchase of cryptocurrency for investors and the higher the price.
  2. Mining Bitcoin. With the approach to the upper emission point, the process of mining cryptocurrency becomes more complicated. The time and money spent on creating one block grows. Very soon, in the summer of 2016, there will be a decrease in premium coins received by miners for creating a new block from 50 to 25. Accordingly, the cost of the coin will also increase. Because of this, the rate of the cryptocurrency is kept at the same level for a long time and even grows slightly.

Since May 16, 2015, the Bitcoin rate has increased from $ 235 per coin to $ 451. However, this trend continues today. Many investors who plan to preserve and increase capital are boldly investing in Bitcoins, which are one of the best long-term investment options.

  1. Lack of collateral. Cryptocurrency is unsecured and does not represent a debt. What does this mean? Well-known money transfer systems such as WebMoney, Qiwi, Yandex.Money and others are an electronic version of real currency, that is, a promissory note for the same promissory notes (so to speak). As for the cryptocurrency, this is not a promissory note, but an individual price equivalent. This feature allows you to use cryptocurrency as a commodity - change, pay for services, and so on. This is why Bitcoin is so expensive. Compared to the competition, it is a full-fledged e-currency, not an "online bond."
  2. Determining the price of a cryptocurrency is a dependent process. Roughly speaking, the value of a cryptocurrency is formed in the same way as for securities or precious metals. If there is a demand that exceeds the supply, the price invariably increases. The system itself is held not by the Central Bank of the country and its actions, but by each of the participants in the crypto network, in particular. The system itself recognizes only the principles of consensus and is surprisingly democratic, which is not at all absolute, although the opinion of everyone, even a minor member of the Bitcoin community, is important here.
  3. Decentralization. Bitcoin is also expensive because it is decentralized. It does not have a common regulator - only users who form a common network and are an invariable part of it. This is one of the main values of the cryptocurrency. The same users act as issuers of Bitcoin. At the same time, the emission rate is tied to the upper output limit and decreases. The reduction occurs by 50% every four years.
  4. Confidentiality. If you ask users why Bitcoin is expensive, they will note the "secrecy" of transactions. It is this quality that forms the popularity of the cryptocurrency, the activity of its use. Each user of the crypto network can make a transfer, being sure that no one will trace it. The reason is that the wallet is not tied to a specific person and it is difficult to track the owner of the wallet. On the other hand, the history of conducted transactions is stored in the database, which allows, if necessary, to identify and neutralize the attacker.
  5. High speed of transactions. The popularity is due to the fact that when making transactions, a low commission is charged, and there are no intermediaries at all when making a transaction. Time for operations is no more than an hour. Not every currency can boast of such efficiency and benefits.

 

Causes of instability

Despite the bright prospects, Bitcoin is hardly a 100% stable currency. Fluctuations in its price depend on a number of factors. The main ones are:

- Speculation in the market, against which no asset in the world is insured.

- Application of Bitcoins in China. After legal companies refused to use cryptocurrency, the rate of the latter fell by almost a third.

- Deflation. As the rate grows, people try to save, not spend, cryptocurrency. As a result, the emission of funds decreases.

- Popularity in the media. The popularity of cryptocurrency leads to the fact that investors are regularly interested in it. Bitcoin is a profitable and very powerful tool for conducting currency speculation, which, in part, can explain the periodical ups and downs of its rate in the past.

 

What to expect in the future?

The question of why Bitcoin is so expensive has been sorted out. But what to expect from cryptocurrency in the future? Earlier, there were opinions that the cost of one Bitcoin will reach a million dollars. Of course this is not real. But almost no one doubts that Bitcoin will continue to grow. Wedbush conducted research and released a report that came to a number of conclusions:

- In the future, there is a risk of a significant increase in the demand for cryptocurrency.

- Emission costs will decrease.

- The size of the commission for international transfers will be reduced to 1%.

The conclusions made allow us to speak about the stability of the Bitcoin exchange rate and keeping its price at the level of 400-450 US dollars. In addition, Wedbush explains why expensive Bitcoin will hold its positions for at least ten years. It is planned that during this period the volume of online payments will grow to 10%, micropayments - up to 20%, money transfers - up to 10%. If these forecasts are realized, then the total share of Bitcoin in the financial market will amount to 600 billion US dollars.

 

Expert opinions

More than a dozen experts have spoken about the Bitcoin exchange rate and the future of cryptocurrency as a whole. For example, Roger Ver, a well-known expert on the cryptocurrency network, believes that in 2016 the cryptocurrency rate will be insignificant, but will grow. He spoke originally about Bitcoin and Matthew Rozak. He described Bitcoin in his own way from the position of the most undervalued currency. Matthew is not surprised why Bitcoin is expensive and believes that the cryptocurrency will continue to grow further. Moreover, in his opinion, virtual coins are undervalued by at least $ 200.

Tim Draper (a well-known investor) believes that the time will come when the popularity of cryptocurrency will exceed the demand for gold. This is facilitated by the fact that the volume of Bitcoin issue is limited to 21 million coins. Against the backdrop of high demand, Bitcoin has no choice but to continue its growth.

Thus, most of the experts agree that the cryptocurrency rate in the coming years will remain between the marks of $ 400-600 per coin. At the same time, although insignificant, growth will be present. If this dynamics continues, then by the end of 2017 the cost of one coin may reach the level of $ 1000-1500.