Cryptocurrency is a virtual currency with a cryptographic framework with an actual value. For example, Bitcoin is also a cryptocurrency. In some countries, bitcoin is classified as money services business and property. For example, Canada has classified bitcoin as a commodity and cryptocurrency exchange as a money service business.
In Australia, bitcoin is for tax on capital gains, whereas in countries like China, Bitcoin is now banned. In addition, India is about to release its digital currency and impose cryptocurrency regulations.
The bill might ban all private currencies. Cryptocurrencies like bitcoin and altcoins require cryptocurrency regulations. However, higher authorities are not issuing these digital coins. As a result, purchasing or investing in Bitcoin is different from investing in conventional trading mediums like stocks, precious metals like gold and bonds.
It understands the impact of factors on bitcoin value!
As discussed above, investing in bitcoin is different from investing in conventional means. Bitcoin works on a decentralized purpose and tries its best to make a decentralized finance segment by offering numerous advantages to the users as an alternate payment method since bitcoin is not pegged with the guidelines of financial authorities imposed for the fiat currencies.
Due to this fact, factors like inflation rate and regulations for fiat currencies barely affect bitcoin’s market value. A list of factors that affect bitcoin’s market value includes the supply and expenses of bitcoin mining. That is why popular methods to make money with Bitcoins are still encouraged since it’s not nearly affected.
Supply & Demand
Not only bitcoin but every conventional and modern investment asset is also affected by the supply and demand factor. Therefore, supply plays an essential role in defining the market value of bitcoin. Bitcoin is a scarce investment asset, and we all know scarcer investment asset is expected to have a high value. On the other hand, the extreme availability of any asset will decline its market value. Regardless of decentralization, the supply rate of bitcoin is fixed.
However, the supply rate of bitcoin declines every year as the supply of bitcoin is only limited. Moreover, bitcoin halving is responsible for reducing the rate of supply subsequent four years. The bitcoin halving gives an extreme bump to bitcoin’s market value as the supply gets half.
Now let’s discuss the demand factor in bitcoin valuation. We all know bitcoin is backed by many MNCs, whales and mainstream investors. In addition, cryptocurrency is getting the attention of many countries. For example, El Salvador adopted bitcoin as its national currency due to its lower transaction cost for international transactions. But, on the other hand, Bitcoin offers us pseudonymous transactions, which makes it popular amongst criminals.
Bitcoin mining expense
Bitcoin is also famous as virtual gold as it is analogous to gold by an exceeding extent. In gold mining, the cost of production plays a dynamic role. Like gold, bitcoin mining expenses and the cost of producing new virtual tokens play a significant role in finding the bitcoin value. As per the latest reports, bitcoin’s market valuation is nearly linked to the minimal bitcoin mining expenses.
Bitcoin mining expenses are calculated based on the cost of electricity and mining machines or mining infrastructure. Electricity usage in bitcoin mining overall is more than in countries like Argentina.
Bitcoin is the most lovable cryptocurrency, but altcoins are also getting attention. Altcoins have a clear motive of creating a decentralized and virtual universe, and bitcoin lags in technology from these altcoins. In 2020, bitcoin’s dominance in the cryptocurrency marketplace was 70%, but in 2021 it is just 45 to 50%.
Altcoins like ethereum and Cardano show consistent growth as these are launch pads that allow you to create your decentralized applications. Competition might not directly impact the market valuation of bitcoin as it still showing a significant blow. But it gives investors an alternate option to invest in projects with a bright future. Currently, binance innovative chain, ethereum intelligent chain and Cardano are the most loved projects. As per reports, Solana also has a great future.