Bitcoin operates without a central bank to regulate and influence the valuation of the currency, but Bitcoin operates on a decentralized platform where independent miners provide the power of their computers to constantly maintain a blockchain ledger.
Central banks have different tools such as the interest rate, bonds with which they can increase or decrease the amount of inflation, while digital currencies such as XRP, Ethereum and even Bitcoin are valued according to the trend of the open market
Despite these obstacles, Bitcoin maintains its value using a system of "protocols", "hard forks", discounts, and dependence on external factors. Bitcoin CFD traders should consider this before opening their positions.
What affects the price of bitcoin?
Availability
People mine bitcoins, perform system maintenance, support newer protocols, and in exchange for adding blocks to the system, or approving transactions, they are given a certain amount of bitcoins for each block they process. This reward is halved with every 210,000 blocks added to the system and is known as 'half events'.
In 2009 miners got 50 bitcoins, in 2013 25, in 2018 they got 12.5, and in 2020, it was reduced by 6.25.
The high cost of mining through equipment, electricity, and maintenance requires the sale of bitcoin to benefit the miner.
the value
Markets consist of buyers and sellers. This creates a equilibrium where the amount someone is willing to pay for something is high enough for the seller to accept it and sell his goods.
Usually, having more people wanting to buy bitcoin will cause its price to go up. The increase in demand for the currency is affected by the number of markets that allow its users to use the currency such as PayPal.
Use cases
Bitcoin was created to be an alternative currency, unlike Ether or Ripple that are only intended for use on certain platforms, and this means that Bitcoin depends on individuals to estimate its value through the extent of its circulation or the amount of spending, and therefore its value can continue to rise as market demand increases .
Traders morale
Some people may hold bitcoins for the purpose of making purchases, similar to the way we use fiat currencies, while others buy bitcoins for the purpose of trading, holding the currency until its value increases, and then exchanging it for dollars (BTCUSD), euros (EURGBP), or any other Another currency. The more a currency is traded, the higher the potential for speculation and volatility.
When owning the underlying asset, it requires the owner to hold the coin, pay the maintenance fee, and find a buyer when he is ready to sell. Alternatively, some traders trade CFDs as a method of executing leveraged and commission-free trades where they can open both buy and sell positions on the bitcoin price.
Fork and regulation
Hard forks refer to a major protocol change that all network auditors must follow, creating the potential for price volatility. There are times when some miners may choose not to switch to new regulated protocols due to a disagreement with them or for some other reason.
When this happens, all miners who adhere to the old protocols are no longer part of the Bitcoin network, and their coins are seen as new, which affects their availability in the market. This is how Bitcoin Cash was created.
Bitcoin, like other digital currencies, does not have a central bank to regulate its value, which is a feature that many people love about blockchain technologies, but which lends itself to unexpected valuations. Traders should remain fully aware that when creating greater use cases and adoptions for these digital currencies, there will also be opportunities for high volatility and risk.