Cryptocurrency has become the fourth most popular investment after stocks, real estate, bonds, and mutual funds. Now, around one in ten people have invested in cryptocurrency. It’s become such an attractive investment because it has a high growth rate, is easy to trade, and provides the opportunity to earn a significant return on your investment.
But, before investing your money, it’s essential to understand the question of how is Bitcoin valued. Jumping on the cryptocurrency train just to avoid missing out could cost you in the long run. So, read on to educate yourself on the cryptocurrency market and learn how Bitcoin value is calculated.
What Is Cryptocurrency?
Cryptocurrency is a digital currency that isn’t backed by a bank or government entity. Instead, private blockchain companies issue crypto. Investors can buy and sell cryptocurrency on the market, like exchanging stocks.
There are hundreds of cryptocurrencies, but popular ones include Bitcoin, Ethereum, and Litecoin. Each has a limit of the number available.
You can buy cryptocurrency by exchanging it for standard currency like the dollar. You can do this through an exchange or a Bitcoin ATM like Byte Federal.
How Is Bitcoin Valued?
Since Bitcoin isn’t backed by any bank, government, or specific company, it is difficult to determine its exact value. On the market, you can see the specific price that will tell you how much is the value of one Bitcoin. Bitcoin’s value is then determined by market forces making the trading price what it is worth.
But it’s important to note that price is different from value. Price is how much something costs because that is what someone is willing to pay. Value, on the other hand, is how much something is worth.
There is a debate over whether Bitcoin has intrinsic value. Investors often say that Bitcoin has value in the hundreds of thousands. Others are skeptical about if Bitcoin is a viable currency because they feel like the Bitcoin intrinsic value is zero.
How Is Bitcoin Value Created?
Bitcoin gains value for two main reasons: demand and scarcity.
Bitcoin first launched in 2009. As more people see it as an investment opportunity, the demand for Bitcoin rises. As demand grows, it becomes worth more, and you can expect to pay a higher price for one Bitcoin.
The creators of Bitcoin have set a limit of the number of Bitcoins that can be mined to 21 million. More Bitcoins are generated as miners use computers to solve a complex algorithm. This process takes time and a lot of processing power but produces a new Bitcoin.
The combination of rising demand and limited availability increases the value of Bitcoin. However, since both the number of Bitcoin and demand can vary considerably, Bitcoin is considered a volatile investment like all cryptocurrencies. Since it is so new, there is a lot of uncertainty about its future in the market.
Make Your Crypto Investments Wisely
Cryptocurrency has grown into a popular and viable way to invest your money. But, with this digital currency, it can be tricky to make the right investments and reduce risk. With an understanding of how is Bitcoin valued, you are better prepared to make smart Bitcoin investments that will make you money.
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