Bitcoin started its success story in 2009 when it first appeared and promised easier payments, stable value, and less chance of market manipulation. Since then, this cryptocurrency managed to hold up to its potential, becoming one of the most compelling investment opportunities on the market. This year we are witnessing a rapid incline of the Bitcoin value, and this trend is still going strong. What caused this enormous growth, and how high can Bitcoin value reach? We are going to try to find an answer in this article. We are going to examine several aspects that have a huge influence on Bitcoin and elaborate on them.
We also created an interesting infographic that depicts everything we are about to say in this article.
The driving force behind Bitcoin
As any other market asset, Bitcoin depends on various factors that dictate its flow, value, supply, and demand. These variables are not virtual, or controllable by an institution or individual. Political and economic situation have a substantial influence on Bitcoin value. It is one thing to mine Bitcoin and trade with other Bitcoin miners and traders. Using Bitcoin to buy goods and services is a whole other thing, and gives the whole situation a different perspective. That is the reason why some countries are actively working on preparing their infrastructure to support Bitcoin as a legal means of payment. Another reason that forces the governments to think about Bitcoin is the number of people involved with Bitcoin. The number of people that are mining and trading Bitcoin is rising at an extremely fast pace, so much so that it is difficult to ignore it.
What causes the demand for Bitcoin?
To understand the growth of Bitcoin value, we need to analyze the market situation. Demand is our first priority, so let us see what makes Bitcoin so appealing at this time.
Japan recognized this trend and decided to legalize Bitcoin as a legal currency, allowing people to use Bitcoin for their payments. They still have some infrastructural and legislative things to take care of, but the point still stands-Japan legalized Bitcoin, which in turn inflated the demand for this cryptocurrency.
Australia is soon going to follow the suit and legalize the use of Bitcoin in their country. This is yet to happen; however, Australia has proven to be a leader in modernizing their country and their way of life, so we can see them paying their bills using Bitcoin.
However, if we take it a few years back, the EU gave Bitcoin its largest push. In 2015, the EU Court of Justice decided that exchange of Bitcoin for traditional currency is exempt of the VAT. Companies started turning their money into Bitcoin massively since then.
At this moment there are anywhere between 5.8 and 11.5 million active wallets that companies and individuals use for trade and payments. It is estimated that 72 percent of companies use Bitcoin when doing business with banks.
Hurry up before the supplies run out!
The first rule of the market is that the demand creates supplies, and limited supplies generate higher demand. Even virtual currency takes physical space, which means there are boundaries in terms of how much Bitcoin there is in the world. Because of how Bitcoin protocol works, there is a limited supply of 21 million Bitcoin in the world. The reason for limited supply is that the “rewards” for adding blocks are being halved every 210000 blocks. Simple mathematics leads us to 21 million Bitcoins as a final number. After that, there will be no more Bitcoin left to mine. At this time, there is still 22 percent left for mining and miners have agreed to divide the rewards according to the hash size that each miner dedicates. This could result in higher mining volume, which could end up going both ways when it comes to the price of Bitcoin. For the time being, this “gold rush” generates higher Bitcoin value, and as the time goes by, we could see Bitcoin reaching amazing value. Once the supplies run out it is difficult to determine how the market is going to react.
When it comes to supplies, it is interesting to see that the production of Bitcoin in most part lies in China. With over 81 percent of mining volume deriving from China, the political influence of Chinese government has a huge role to play in forming Bitcoin price on the market. In other words, the investors and traders have to be certain in the political and economic stability of Chinese market if they are going to invest in Bitcoin.
All indicators show that the rapid growth of Bitcoin that we are experiencing in the last months is going to continue. If this trend continues, it is almost without a doubt that the US$10k benchmark is even closer than we think.
(Infographic by Techinfographics: bitcoin price)
Dimitar Dimitrov, the owner, and PM of Techinfographics.com. Dimitar is a young entrepreneur who is into technology and innovation. He is an investor and key figure into several other online projects. He travels and writes about technology and business.