How Is Bitcoin Valued?

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Bitcoin is a major digital currency or cryptocurrency. Unlike the dollar, euro, pound, yen, peso, and other government-backed currencies, cryptocurrencies are not officially supported by any central bank or government. Instead, the currency trades in an open marketplace similar to the stock market, where buyers and sellers can exchange their local currency for bitcoin or vice versa.

While some cryptocurrency exchanges host their own trading platforms and prices may vary slightly, the overall market price of bitcoin is simply the latest trade price where a buyer and seller agreed on a price. However, bitcoin enthusiasts often say that the intrinsic value of bitcoin is in the six-figure range, while skeptics say it could be worth zero. Keep reading to find out how bitcoin’s price is set and how you can get in on the market action.

Who Sets Bitcoin’s Price?

The value of bitcoin is determined by the same market forces that influence the value of any other good or service. If more people want to buy than sell, prices will likely increase. If there are more sellers, the price tends to fall. This is similar to the stock market, real estate, and most other open marketplaces.

Bitcoin has a fixed maximum supply of 21 million coins, and as of Sept. 23, 2021, nearly 19 million coins have already been created. This concept is comparable to outstanding shares in the stock market.

When an open buy order and sell order meet at a common price, the order executes. That final trade price is the current bitcoin value. You can find the most recent bitcoin price using a site like CoinMarketCap or a public blockchain explorer, which is a site that lets anyone review any bitcoin transaction that’s ever taken place.

You may find that some exchanges list different prices for bitcoin. This is because some exchanges operate independently of the open market and serve only their members, so prices may vary slightly from the overall market. This sometimes benefits members because you may be able to buy bitcoin without paying network fees, which may be more than the exchange’s fees. Additionally, with some exchanges, including eToro, there is a fee called a “spread” in the bitcoin price, which makes it slightly higher than the market price.

Bitcoin’s Price vs. Value

When buying or selling any financial product, it’s important to distinguish between price and value. The price is the current cost, or what someone is willing to pay for something right now. The value, on the other hand, is what something is worth, and price doesn’t always equal value.

For example, in the stock market, the value of a share of stock is determined by analysts reviewing the company’s financial performance and prospects. Bitcoin, on the other hand, isn’t backed by a specific company or service, which makes it harder to find an intrinsic value for the digital currency. 

Whether or not bitcoin has intrinsic value is an ongoing debate, and it’s important to consider both sides of the debate before investing in bitcoin. If the skeptics are right, bitcoin could dramatically fall in price, as many believe Bitcoin is just a bubble that will eventually pop. But if the bulls are right, there could be many more crypto millionaires in the future.

Factors That Could Impact Bitcoin’s Price

Bitcoin is a unique asset that is relatively new, which is why the future is generally considered uncertain. While it’s about a decade old, it’s still a Wild West type of frontier in many ways, with future regulations uncertain. While it’s possible the value of bitcoin could surpass $100,000, it could also go to zero. 

The biggest single factor that could impact bitcoin’s price is likely government action. As occurred in China in July 2021, the United States or other governments could implement new laws or regulations that severely limit bitcoin or even make it illegal. 

When it comes to cryptocurrency regulation, The Federal Trade Commission and The Commodity Futures Trading Association are two major government organizations to watch. Because cryptocurrency accounts are not backed by a government, there are risks involved, in that these types of payments do not come with the same legal or privacy protections as the U.S. dollar.

On the other side, however, a single investor or fund could drive bitcoin prices up. Tesla CEO Elon Musk’s Tweets, for example, tend to have an impact on crypto market prices. Catherine Wood, CEO of Ark Invest, is another major Bitcoin advocate who may help lead the market upward. In addition, early investors who built up a significant bitcoin holding, sometimes known as bitcoin whales, can swing the markets by entering a large transaction. There are dedicated places to track “whale” transactions online, such as the Whale Alert Twitter account.

It’s important to understand that investing in bitcoin is highly volatile and risky. While you could buy bitcoin and earn a big return, there are also major risks of loss. For most people, it’s best to limit bitcoin investing to funds they can afford to lose.

Frequently Asked Questions (FAQs)

How do you track the value of bitcoin?

The value of bitcoin is publicly available at any time through most cryptocurrency exchanges, as well as cryptocurrency news and market websites. CoinMarketCap is one of the larger and better-known cryptocurrency valuation and data websites and is a trusted source of bitcoin price data. If you have an account at an exchange or brokerages like Coinbase, Robinhood, Gemini, Binance, eToro, or FTX, you can view the current price in your trading app or account online.

What is the highest value ever reached for one bitcoin?

In April 2021, the price of bitcoin briefly surpassed $60,000 for a single bitcoin. On April 14, Bitcoin hit a peak price of $64,863, which remains the record as of this writing. After falling to around $30,000 per bitcoin in July 2021, the price has since rebounded.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.