You may need help determining why Bitcoin is worth much, especially with its erratic price shifts. One day, one Bitcoin might be worth $20,000. The next day it could skyrocket to $30,000, only to plummet again. If you are lost on why the price of Bitcoin fluctuates so much, you’re not alone. Many people are curious about Bitcoin's value but don't understand what drives the price. Understanding why Bitcoin is worth so much and what is Bitcoin halving is crucial for anyone looking to invest in BTC, as it helps to make sense of Bitcoin's volatile nature and prepare for the risks associated with price fluctuations.
One valuable resource for uncovering insights about Bitcoin analysis price, performance, and market trends is Bitcoin Magazine Pro. This subscription service provides ongoing analysis and research focused on Bitcoin, helping you understand the many factors affecting Bitcoin’s value.
BTC Breaks Above $100K, Is a New All-Time High on the Horizon?
Bitcoin’s recent price movement has been nothing short of spectacular. After spending much of the last two years under $30,000, Bitcoin’s price has surged in 2024, recently breaking above the $100,000 mark. This surge above $100,000 is significant because this price level is historically a key resistance level for the asset.
Bitcoin hitting $100,000 is similar to a stock breaking above a previous all-time high; it often signifies that the market has flipped “bullish” on the asset, and any further upward price movements are likely.
What’s Next? Will Bitcoin Hit a New All-Time High?
Bitcoin's price is on the verge of decisively breaking out from the $100K resistance level as investors prepare for a potential rally higher. Is a new all-time high on the horizon?
Technical Analysis: Bitcoin’s Daily Chart
The asset has consistently been making higher highs and lows on the daily chart since rebounding from the $52K support level. It has also broken above several resistance levels and now sits well above the resistance of $100,000. The RSI is showing clear bullish momentum, and it’s likely for the market to finally decisively conquer $100K and move toward the $120K psychological resistance zone.
Technical Analysis: Bitcoin’s 4-Hour Chart
The 4-hour chart shows a clearer picture of recent price action, as the market has been climbing higher inside a large ascending channel. With the lower boundary of the pattern remaining intact, the market is now paving its way toward the higher trendline and potentially the $105K level in the short term. A breakout above the ascending channel will likely lead to an aggressive rally higher.
On-Chain Analysis: Coinbase Premium Index
American investors, including US institutions, are mostly responsible for market moves. As a result, analyzing their behavior can be beneficial in making an accurate prediction about short-term market moves. This chart presents the Bitcoin Coinbase Premium Index, which is a metric that measures the relative buying and selling pressure on Coinbase compared to Binance.
Coinbase is used mainly by American traders, while Binance is utilized worldwide. Therefore, this metric can indicate whether American investors are buying or selling at a higher or lower rate than other parts of the world. As the chart demonstrates, the Coinbase Premium Index has been shown highly positive values over the last couple of months, indicating the buying pressure from the US post-election, which is likely responsible for the market’s recent rally. If this metric shows positive readings, BTC could expect more upside.
Should You Invest in Bitcoin Now?
Despite optimism about a BTC-friendly regulatory shift, wealth advisor Peter Hughes, founder of Evolve Investing, said investors must stay mindful of Bitcoin's historical volatility. “When you see a run-up in Bitcoin like we've seen post-election, I get a lot more interest from clients, so what I'll typically do is show them the drawdown risk,” Hughes said.
He pointed to BTC’s dramatic decline following its previous peak in November 2021, when prices fell more than 70% over the following year. If investors are comfortable with the risk, Hughes suggests allocating no more than 5% of their portfolio to Bitcoin, citing studies that indicate a Bitcoin allocation above 5% increases the volatility of an overall investment portfolio dramatically.
“When Bitcoin as a percentage of the overall portfolio starts to exceed that 5% threshold, it's at that point that the portfolio becomes more risky than holding, say, a nearly 100% equity portfolio,” he said. For newer investors, Aditi Kapadia, the founder of Wealth IQ, suggested starting with small allocations to spot ETFs or regulated platforms as a “prudent” first step. “Regardless of how you invest, maintaining a long-term perspective and keeping emotions in check during volatile periods will be critical to success,” she said.
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Why is Bitcoin Worth So Much?
One of the most common answers to this question is that Bitcoin has currency-like characteristics that make the asset valuable. Bitcoin has a limited supply, can’t be counterfeited, and is easily transportable and transferable, much like any other fiat currency out there. This technical answer eludes the most important part of the query as it doesn’t explain why Bitcoin has such an enormous value.
Bitcoin doesn’t have a base price or intrinsic value; instead, it is worth only as much as people think it is worth. Simply put, what truly makes Bitcoin valuable is the demand for Bitcoin.
Understanding Bitcoin Price Fluctuations
You might have heard that Bitcoin is a decentralized asset. Unlike fiat currency or stocks, Bitcoin has no fixed, universal price across the markets. Bitcoin price changes from one Bitcoin exchange to the other because each exchange operates its marketplace. Bitcoin exchanges allow people to buy and sell BTC, with each customer setting their preferred transaction price.
The Impact of Demand on Bitcoin Prices
That means when there is a demand to buy Bitcoin, sellers increase the prices to make higher returns on their investments. If the buy period runs for a decent amount of time, the moving prices spiral upwards, increasing Bitcoin prices.
When the price of Bitcoin rises on an exchange, there is a decent chance that it will rise in others, too, but it is never uniform because you can never guess what people are willing to pay for it at any given second.
What Is Bitcoin Backed By?
Why does traditional money have value? Money is both a store of value and a medium of exchange. The US dollar and other currencies make it easy to exchange goods and services. The alternative would be systems like barter, which have limitations that make them impractical for most transactions. Traditional money allows us to transact in any amount needed and acts as a store of value in between transactions.
Sound money exhibits six core characteristics, ranging from portability to fungibility. Let’s examine these characteristics and why they are important for any viable form of money.
- Durability: Money should be able to withstand use as it passes from hand to hand. Today’s paper money isn’t paper at all. Instead, US notes are made of cotton and linen, making the notes durable.
- Portability: To spend money, we often have to move it from place to place. Paper and coins fulfill this requirement. The ability to move money electronically also fulfills the requirement for portability.
- Divisibility: One of the primary issues with barter centers on unequal values of the products and services between transacting parties. Traditional currencies like the USD can be divided into smaller denominations using coins.
- Fungibility: The term fungibility refers to sameness. One dollar is the same as the next concerning its value.
- Scarcity: The supply of a currency directly affects the cost of goods and services. While the supply of USD and similar fiat currencies has grown dramatically, they typically aren’t created at will. Instead, debt provides an anchor to slow the growth in supply.
- Acceptability: To function effectively as money, a currency must be accepted as a store of value. In short, the transacting parties must have faith that the currency will allow them to use it for future purchases.
Compared: Why Does Bitcoin Have Value?
Bitcoin achieves the six characteristics of sound money but approaches these differently than traditional currencies. Bitcoin is portable and divisible. Its scarcity may be its most attractive feature.
Durability
Bitcoin can’t degrade when used in transactions as a digital asset. However, that turns attention to Bitcoin’s network. The Bitcoin network allows anyone to create a node to help support the network and even mine Bitcoin to secure the network. The US currently leads in bitcoin mining hash power, but mining occurs worldwide, creating a robust network.
Portability
Bitcoin is much more portable than cash or gold. Someone who has memorized their Bitcoin wallet’s seed phrase can board a boat or plane and take their wealth anywhere in the world. By contrast, US travelers traveling across the border must report amounts of cash above $10,000.
Divisibility
Bitcoin’s smallest denomination is a satoshi, which is 1/100 millionth of a bitcoin. However, the Lightning Network, a Layer-2 network on top of Bitcoin, uses milliwatts, dividing each satoshi into a thousand millisats.
Fungibility
Much like:
- Dollar bills
- Rach bitcoin
- Satoshi
- Millisat
Has the same value as others of the same denomination. This interchangeability is crucial for sound money.
Scarcity
Ever wondered what drives Bitcoin’s price? With a capped supply of 21 million and much of the supply in offline cold storage, Bitcoin fulfills the scarcity requirement of sound money. While changing the code to create a higher cap is possible, the node operators vote on this by choosing which version of the Bitcoin Core software they run.
Maintaining a limited supply matches their financial interests, making any change in Bitcoin’s supply extremely unlikely. Every Bitcoin Halving, the rate of Bitcoin issuance goes down as well.
Acceptability
With a decade and a half of history, bitcoin is now an accepted form of money for many in the community. Expect this trend to continue as traditional currencies continue to grow in supply.
Gold and Other Assets as Reliable Stores of Value
Currencies typically represent purchasing power. They can be used to store value to use for different purposes. The more stable a currency is, the stronger its capacity to protect its worth over time. The same idea holds for assets. Real estate and art have good long-term store value because their worth doesn’t typically vanish over time.
Another asset that has a great store of value is gold. Gold has a reputation for being a stable and durable asset that investors can take advantage of during especially turbulent economic stages because it is always valuable.
Bitcoin: The Digital Gold of the Modern Era
Bitcoin enthusiasts think the digital currency is most closely associated with gold out of all asset types. Gold doesn’t have intrinsic value but is still valuable because it is a rare commodity people accept as valuable.
Like gold, Bitcoin also has a limited supply, meaning it can become a gold-like asset for storing value over long periods. This is what most Bitcoin enthusiasts think the asset is headed for.
Arguments Against Bitcoin Having Intrinsic Value
By definition, Bitcoin has no intrinsic value. Intrinsic value refers to the value independent of current market gyrations. You can measure the inherent value of a business, for example, by measuring its cash flow and assets or gold by its utility in manufacturing.
Bitcoin has no cash flow or yield and no real-world application other than being a store of value and medium of exchange. This causes skeptics to question its value.
Driven By Speculation Rather Than Utility
Critics of Bitcoin often point to similarities to the 17th-century tulip mania that may or may not have happened. As the story goes, Dutch traders bid up the price of tulip bulbs until the market inevitably crashed and tulip bulb prices returned to earth. Some say Bitcoin’s price is the product of reckless speculation.
Intangible Nature (No Physical Form)
Digital assets present a particularly challenging concept for some. Although we live in a world where account balances are numbers on a screen, we know we can withdraw physical cash to the bank. Bitcoin will always be numbers on a screen. The specter of Bitcoin as phantom money remains and could slow adoption.
Note: Physical bitcoins exist but are a representation or collectible rather than a true bitcoin.
Lack of Traditional Backing
One of the main differences between Bitcoin and cash is that digital currencies are decentralized, whilst fiat money is governed by centralized entities such as financial institutions and governments. Unlike traditional currencies, Bitcoin isn’t issued by a central bank or centralized government. The Bitcoin network creates new bitcoins as mining rewards when miners find new blocks to hold transactions.
Bitcoin custody also follows a non-traditional path. We’re accustomed to using banks to hold traditional currencies. However, Bitcoin custody requires the use of a Bitcoin wallet. These wallets might be custodial wallets with an exchange or broker or, in many cases, Bitcoin owners hold their bitcoins in self-custody Bitcoin wallets.
Why is Bitcoin Worth So Much?
While some point to the amount of computing power needed to produce one bitcoin as the reason for its price, this is based on assumptions rather than verified data. The timing of spikes in Bitcoin’s price may hold a clue to its allure and perceived value in the market. In recent times, prices have seen increases due to specific events.
- Interest Rate News: Bitcoin prices spiked several times due to rumors of a Fed rate cut or slowed increases. Markets saw this news as inflationary.
- Bank Failures: The collapse of several large banks in 2023 led to Bitcoin price spikes. At least part of the BTC price action reflected a flight to (relative) safety within the Bitcoin space.
- Etf Launch: Bitcoin saw significant price appreciation in the months leading up to the launch of several Bitcoin spot exchange-traded funds (ETFs). Previous price run-ups, such as the 2021 all-time high of more than $69,000, helped create broader awareness for Bitcoin. The recovery after the dramatic crash lends credence to the long-term value of Bitcoin, which has seen a stronger recovery.
Many expect Bitcoin to continue its slow rise as governments and central banks increase their debt and money supply worldwide. Some see Bitcoin as a reflection of monetary policy, with Bitcoin rising in price in response to loose monetary policy and unsustainable debt. This parallels some of the Bitcoin white paper's concerns regarding our current financial system.
What Drives Bitcoin Prices?
We can see how each of these factors affects the price of Bitcoin if we look into the history of Bitcoin. When Mt.Gox, the world's most significant operational Bitcoin exchange, went bankrupt due to a substantial hack back in 2014, Bitcoin prices plummeted by around 20%. News of exchange hacks and scams affect Bitcoin prices negatively because they damage the public’s trust in the asset as a viable investment.
Like industry leaders embracing Bitcoin, good news generates excitement about the digital asset and increases Bitcoin prices. Bitcoin prices increased when Microsoft announced it would accept Bitcoin payments for services in 2014 or allow customers to purchase and use Bitcoin through their PayPal accounts in 2020. Similarly, when industry leaders such as Elon Musk tweet about Bitcoin, the prices tend to move depending on the message.
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