Know the Price of Bitcoin in a Nutshell

  • Bitcoin, like all currency, is traded in increments of $1.
  • A single bitcoin is divisible to 8 decimal places, or 0.00000001, known as one satoshi.
  • Bitcoin, the digital currency, was created in 2009.

The price of Bitcoin has surged to over $200,000 per coin during peak trading periods, up from less than $1,000 in 2017. So, how much is a bitcoin? Not long ago, a bitcoin was worth nothing. Today, a single bitcoin trades for roughly $20,000.

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Bitcoin is Not a Commodity

Bitcoin is not a commodity. Some argue that it's a commodity, as it's traded on commodity exchanges, and it's a finite resource. But Bitcoin is also money. It's "money" because it is used and accepted as a form of payment for goods and services.
Bitcoin is not Gold. Gold is also a finite resource, and it's a commodity. But it is not used as a medium of exchange in commerce. Rather, it's a store of value. Someone might buy gold as a hedge against inflation, or they might buy gold as a store of value.

Bitcoin's Price History

2011 - 2015: Bitcoin's price starts around $0.05 and rises to $41.74 by 2015.
2015 - 2018: The price starts around $390 and rises to $20,000 in late 2017, but then drops to $6,000 by the end of 2018.

Why the Price Changes?

Like any other currency, the value of bitcoins is determined entirely by the supply and demand of the market. The price fluctuates according to the demand.
The supply of bitcoins is finite. As of Jan. 30, 2021, there were 21,922,570 bitcoins in circulation. As more miners are incentivized to join the network, more bitcoins are added to the existing supply.

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Bitcoin Supply and Demand

Bitcoin is capped at 21 million coins.
The supply curve is derived from the mining process.
A gold-mining analogy is "the amount of gold that is mined each year, multiplied by the proportion of gold that remains in the Earth, divided by the length of time gold has been in the Earth, is equal to the total amount of gold in the Earth."
Miners discover bitcoin at a rate that is proportional to the amount of bitcoin that existed when they started.
The total number of bitcoins is 21 million, so when the supply reaches 21 million, the supply curve becomes vertical.
This total number cannot be exceeded, because miners are incentivized to mine bitcoin at a rate that prevents the total supply from exceeding 21 million.
The market price of bitcoin is the inverse of the supply curve.
If bitcoin is $10,000, then the supply curve is downward sloping.
If bitcoin is $100,000, then the supply curve is upward sloping.
As the price rises, the curve shifts to the right, indicating that the supply of bitcoin is falling.
The supply curve is completely vertical when bitcoin's price is $0.
A vertical supply curve indicates that there are 21 million bitcoins in existence.

bitcoin price

Bitcoin Price Drivers

The price of bitcoin is driven by the following:
Supply and demand: the finite supply of bitcoin, and the rate of new mining created

News: announcements from the Bitcoin community, such as price forecasts, new technology, or regulation

Bitcoin's Future as a Currency

Bitcoin's future as a currency is an appealing premise. Supporters claim it is more secure than current mainstream payments systems, such as credit cards.
However, there are limitations to bitcoin's acceptance. For one, bitcoin transactions are not instantaneous. Each transaction requires time to validate.
Another issue is that bitcoin's value fluctuates wildly. If the value of bitcoin drops, its volatility creates uncertainty, which erodes consumer confidence.

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The Bottom Line

While the bitcoin price will continue to be volatile, the bitcoin futures contracts will offer traders a way to hedge against the price swings. The futures contracts will also offer investors a way to profit by trading on the futures contracts, though the profits will be limited.