A bitcoin has value because it can be exchanged for and used in place of fiat currency, but it maintains a high exchange rate primarily because it is in demand by investors interested in the possibility of returns.
Of course, many other factors influence Bitcoin's value. Read on to learn more about why Bitcoin has value.
Key Takeaways
Bitcoin has value because it can function as a store of value and a unit of exchange. It also demonstrates six key attributes that enable its use in an economy.
The definition of value in a currency has changed over centuries from physical attributes to the velocity of its use in an economy.
Bitcoin demonstrates the attributes of a currency, but its primary source of value lies in its restricted supply and increasing demand.
Why Traditional Currencies Have Value
Throughout history, many items have been used to exchange value—such as shells, beads, animal skins, and precious metals. In this respect, these items are regarded as "money." Money doesn't have to be the printed currency we are all familiar with—all it needs is to act as a store of value, be recognizable as a unit of account, and be accepted as a medium of exchange.
So, if an item meets those criteria, it is money. However, to be successful and long-lasting, it must have:
Scarcity: It must not be a widely available resource
Divisibility: Currency should have many denominations
Acceptability: The intended audience must accept it
Portability: It must be able to be carried around and exchanged
Durability: Currency should have a long life span time
Uniformity: All denominations should be identical and not easily reproduced
Value is then assigned by the users based on its supply, demand for the currency, how much it is worth to them, and how much of a given good or service it can purchase.
The image below compares many different value attributes of gold, fiat, and crypto.
Why Does Bitcoin Have Value?
Cryptocurrency displays the same attributes a fiat currency system does. Here's how it meets them:
Scarcity: As the supply of unrewarded coins diminishes, demand increases. There will only ever be 21 million bitcoins in existence.
Divisibility: Bitcoin is much more divisible than fiat currencies. One bitcoin can be divided into up to eight decimal places, with constituent units called satoshis.
Acceptability: More and more people are becoming familiar with cryptocurrencies, and citizens of many countries are adopting them because their financial systems are failing them. Businesses are accepting them in greater numbers, and more consumers are using them.
Portability: Bitcoin can be used across borders, allowing any consumer with an internet connection to participate in the global economy and access financial services.
Durability: As it occupies a digital space, a bitcoin can last as long as there is a digital area for it to be stored in.
Uniformity: Bitcoins cannot be counterfeited and don't have a physical appearance, although there are renditions of coins that represent Bitcoin.
As Bitcoin has also become accepted as a medium of exchange, stores value, and is recognized as a unit of account, it is considered money.
Two of the most influential factors behind Bitcoin's price volatility are greed and the fear of missing out on large returns. Greed is generally considered a negative trait, but in these modern (and expensive) times, it is natural for people to want more money. In fact, society and the businesses operating within it even encourage the desire for more.
But its exchange rate, the value most often associated with the coin, isn't so much a factor of the people who use bitcoins in transactions; it's investors buying the cryptocurrency hoping for profits and traders buying and selling it to make money on price movements.
Because it is in demand by investors (realistically, they are speculators because they are hoping for returns), Bitcoin commands a very high price, as demonstrated by the exchange rates it has experienced in the past. At one point, 1 BTC was valued at less than $1—more than one decade later, that same bitcoin would have been worth more than $75,000. Prices have varied wildly since Bitcoin was introduced, but this volatility has many hoping that the market will continue to feed an increasing value.
Why Is Bitcoin So Precious?
Like any asset or thing of value, the price people are willing to pay for bitcoins is a socially agreed-upon level based on supply and demand. As long as Bitcoin is highly valued by some, it will maintain its demand.
What Is the Point of Bitcoin?
Bitcoin's original design was to be a replacement for traditional money systems and take control of money away from centralized governments and third-parties.
What Drives the Price of Bitcoin?
Bitcoin's price is primarily driven by supply, demand, fear, and greed. Some people argue that its price is correlated to its cost of production, its utility as a store of value, or its intrinsic value—but if these were true, it would not be as volatile and reactive as it is.
The Bottom Line
Like all forms of currency, Bitcoin is given value by its users, supply, and demand. As long as it maintains the attributes associated with money and there is demand for it, it will remain a means of exchange, a store of value, and another way for investors to speculate, regardless of its monetary value.
The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read ourwarranty and liability disclaimerfor more info. As of the date this article was written, the author does not own cryptocurrency.
Because it is in demand by investors (realistically, they are speculators because they are hoping for returns), Bitcoin commands a very high price, as demonstrated by the exchange rates it has experienced in the past.
Apart from being a medium of exchange, Bitcoin is often considered a store of value. Similar to gold or other precious assets, Bitcoin is seen as a hedge against inflation and economic instability. The decentralised nature of Bitcoin, coupled with its limited supply, make it resistant to interference and manipulation.
Bitcoin is Scarce useful money. The value of everything in the universe is subjectively determined by supply and demand. This demand is from speculators as you suggest and users in general who use Bitcoin as money.
Today, a handful of approaches are considered appropriate for valuing Bitcoin and its peers, including those based on scarcity, its network, and its marginal cost of production. There are also those who deny that Bitcoin has intrinsic value, citing no company involvement, lack of adoption, and its convertibility.
Bitcoin is a form of digital currency that uses blockchain technology to support transactions between users on a decentralized network. New Bitcoins are created as part of the mining process, as a reward to people whose computer systems help validate transactions. Buying Bitcoin exposes you to a volatile asset class.
How Does Bitcoin Make Money? Miners on the Bitcoin network can be rewarded by successfully opening blocks. Bitcoins are exchangeable for fiat currency via cryptocurrency exchanges. Investors and speculators can make money from trading bitcoins.
Backing a currency is done by the currency's issuer to ensure its value. Bitcoin, gold, and fiat currencies are not backed by any other asset. Bitcoin has value despite no backing because it has properties of sound money.
Key Points. Gold's supply can increase with demand shocks, while Bitcoin's ultimate supply is capped. Bitcoin is easier to store, transport, and transact with. Over the past few years, Bitcoin has been able to significantly increase one's purchasing power.
Who owns the most Bitcoin in the world? The top Bitcoin holder is still believed to be Satoshi Nakamoto, the anonymous creator of Bitcoin, who reportedly holds around 1.1 million BTC across many wallets. Despite this large holding, the top 10 holders collectively only possess about 5.5% of the total Bitcoin supply.
Miners who successfully add blocks to a blockchain automatically receive transaction processing fees and new digital tokens. Creates economic opportunities. The accessibility of crypto mining is creating new business opportunities for tech-savvy people around the world.
It is theoretically possible. Bitcoin has been around for close to 15 years now, and although it has survived several dramatic crashes before making new highs, its extreme volatile nature puts investors at risk of losing all their money.
The live Bitcoin price today is $64,703.00 USD with a 24-hour trading volume of $154.08M USD. The table above accurately updates our BTC price in real time. The price of BTC is down -0.02% since last hour, up 0.85% since yesterday.
Ultimately, investing in bitcoin is a personal decision, whether you're buying ETFs or actual digital coins. If you decide to invest, you should have an already diversified portfolio of assets like index funds. You typically don't want to invest money in speculative assets you can't afford to lose.
1 BTC equals 63,641.00 USD. The current value of 1 Bitcoin is +0.74% against the exchange rate to USD in the last 24 hours. The current Bitcoin market cap is $1.25T. Create a free Kraken account to instantly convert BTC to USD today.
However, some estimates can be made based on blockchain data and surveys of Bitcoin holders. According to data from Bitinfocharts, as of March 2023, there are approximately 827,000 addresses that hold 1 bitcoin or more, representing around 4.5% of all addresses on the Bitcoin network.
As of March 2024, there are just over 46 million Bitcoin wallets holding at least $1 of value. This figure is based on the number of unique addresses. In total, approximately 460 million Bitcoin wallets have been created. However, around 90% of these wallets are inactive or hold minimal value.
Bitcoin, the largest cryptocurrency globally, highlights this potential by its remarkable returns over the years. Investors must keep in mind that previous returns do not guarantee future returns, but in 2021, the value of Bitcoin soared well over 60%, demonstrating the possibility of serious returns.
Bitcoin is a risky investment with high volatility, and generally should be considered only if you have a high risk tolerance, are in a strong financial position already and can afford to lose some or all of your investment.
In its latest research report, Ark Invests suggests an optimal Bitcoin allocation of 19.4%. In previous years, Ark Invest's optimal Bitcoin allocation was in the 0.5% to 6% range.
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