Bitcoin isn’t priced by anyone in particular. It’s set by the market which makes pricing the currency more complicated as prices vary by exchange.
The flagship cryptocurrency, is neither supported by any banks or governments nor is it recognized as legal currency. However, private parties can use Bitcoin for transactions if agreed upon, and it is also bought and traded on exchanges by investors. Investors can buy bitcoins through cryptocurrency exchanges. Please note, however, that the legality of bitcoin varies by country, with some countries placing an absolute ban on its transaction. The U.S. Library of Congress publishes a detailed report on its regulatory status around the world.
Bitcoin is a high volatile asset when considering the basis of the currency’s price. When the it was first launched in 2009, it had no official price because it was not being sold. However, when the first exchanges started to appear, a price developed.\
Bitcoin’s price at first was just a few cents, and it wasn’t even being tracked like stocks are in the market. It wasn’t until 2013 when Bitcoin started to take off. In October 2013, Bitcoin was priced at $123.50. It started climbing fast, reaching over $140 in April, and topped $1,000 by December of that same year.1
Factors That Influence Bitcoin’s Price
You may look up the price of Bitcoin on the internet, and you might find two different prices. If you used Coindesk.com, you’d see that the price as of June 1, 2020, was $9,710.72. However, Winkdex.com lists Bitcoin’s price as $9,402.79, as of June 1, 2020.
Some of the reason for all the different values is where the data comes from. It is never traded in one place. Instead, it is traded on multiple exchanges, all of which set their own average prices, based on the trades being made by them at a particular time.
Indexes gather together prices from numerous exchanges and average them out, but not all of the indexes use the same exchanges for their data. If you want to purchase and sell Bitcoin, you have to select a particular exchange, which will have its average price. The price of Bitcoin fluctuates at any given moment, depending on which exchange the information comes from.
Liquidity and Price of Bitcoin
The price of BTC is extremely volatile, partly due to the liquidity (the ability to quickly buy and sell) of the cryptocurrency. The amount of bitcoins flowing through the market at any point in time can help investors to enter and exit positions quickly.
If traders are trading big amount of a particular asset, it becomes harder for one person or event to shift that price in any single direction. Think of it as a stream of water—you can redirect a small stream by putting down a few planks of wood. But if you wanted to redirect the Mississippi, you’d have a much harder time, as there’s too much of it.
With fiat money such as the U.S. dollar and the British pound, people trade massive volumes every day. With Bitcoin, trading volumes are small in relation to the rest of the assets being traded each day—which means that single events can make a bigger difference.
Events That Can Change Bitcoin’s Price
The Bitcoin market is influenced by several events. If it is leaked that a large government is uncertain about how to regulate Bitcoin—as occurred in China—the price can drop.
There are also other factors for how Bitcoin is priced. There are only so many bitcoins available, and they are created at a predictable rate. The ownership of those bitcoins is unevenly distributed—some Bitcoin giants have vast hoards of it in their wallets (digital storage). That, combined with liquidity, makes it easy for people to manipulate the market.
Sometimes, the price can be driven down by large traders who sell bitcoins off in large volume. One such trader, nicknamed BearWhale, temporarily crashed the market by selling off a massive holding of BTC below market value.
When it comes to your bitcoin trading method, you should exercise caution. Bitcoin is an extremely risky asset, and even the most experienced traders and investors can lose money in a highly unpredictable, volatile market. This is not a reliable way for boosting your pension’s earnings potential.