How to Read Bitcoin's Price

It goes up, it goes down. Here's how to make sense of bitcoin's price.

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Bitcoin is a strange animal. Its price fluctuates more than most currencies, which can make it difficult to use as an everyday store of value.

What does it even mean for a currency to have a price, anyway? When we talk about the price of bitcoin, we mean how much it costs to buy bitcoin with another currency. Typically, we talk about ‘fiat’, or ‘real world’ currencies when we talk about the price of bitcoin.

Those currencies are the ones produced by central banks, and they’re the currencies that most people hold.

Bitcoin as a Foreign Currency

Bitcoin’s price can be quoted in other currencies, too. Look at many of the bitcoin exchanges and you’ll be able to tell how many US dollars, Canadian dollars, UK pounds or Euros it would take to buy a single bitcoin.

In the world of Forex trading, currencies are all matched together this way, in different combinations. You can find out how many US dollars it would take you to buy a Japanese Yen, for example, or how many Euros it would take to buy an Australian dollar. Those combinations are called currency pairs, and they fluctuate over time. 

When you talk about a currency pair such as the US dollar to the Yen, you have to describe which currency is being bought, and which is being sold. If you want to change US dollars and get Japanese Yen, for example, then you’re selling dollars and buying Yen.

You always want to work out how much of the currency that you’re buying you’ll get for one unit of the currency you’re selling, so that you can easily do the math and work out how much the amount you’re holding is worth.

In this case, you’d want to work out how many Yen you’ll get for one US dollar. The currency that you’re selling – the currency that there’s one of – is called the base currency, and it’s the one that goes at the front of the currency pair.

So if you were buying Yen (JYP) with US dollars (USD), your base currency would be USD, and you’d look for the currency pair USD/JPY. At the time of writing, that’s 120, meaning that for every dollar you hand over, a currency exchange will give you 120 Yen.

IF you have Yen and want to buy dollars, then you just reverse the currency pair and look for JPY/USD. At the time of writing, that’s 0.00833, meaning that for every Yen you hand over, you get just a fraction of a cent back.

The specific fiat currency that people most often use when referring to bitcoin’s price is the US dollar, because that’s the fiat currency used most often to price assets around the world. When you’re talking about the bitcoin price, you could also call it the BTC/USD currency pair.

The bitcoin price can often vary, depending on which exchange you look at (a variation that can create some interesting trading opportunities, by the way). But several people have created an index of the bitcoin price that takes several different exchanges into account. CoinDesk’s Bitcoin Price Index (BPI) is one. The Winklevoss twins, who have been developing their own Exchange Traded Fund (ETF) supporting bitcoin have another.

But what determines the bitcoin price?

Is there someone sitting around a green baize table somewhere, having secret meetings to set the price of bitcoin? Not quite. For a more detailed explanation of how the bitcoin price is arrived at – and who gets a say – read our article on bitcoin pricing.