As the Bitcoin price continues to decline along with the general cryptocurrency market, lets not forget three major factors.
- On November 10th 2017 the Bitcoin price reached an all time high of $6700 (roughly £4800) and investors were going crazy for the emerging technology… Fast forward just 5 months and at the same price investors and sceptics are questioning if this is the end of Bitcoin.
- In that same 5 months Bitcoin has spiked at almost $20,000 (roughly £14,250) which was a very over inflated price given only a month or so had passed, we are now just back at a stable market price.
- Finally, and most importantly… The price of any currency is only worth what people believe a currency is worth and this is a fundamental economic factor. Currently the Bitcoin price is what one believes it to be worth at that time just like the dollar and the pound and any other currency. The only issue with a dollar is it is quite difficult to spend in another country as it has no inherent value once you leave the United States. Bitcoin is the first ever truly global currency, and this is just one of the factors which drives the Bitcoin price
“Bitcoin’s correlation with equity prices has strengthened recently, but we think that this will be just temporary. We still think that bitcoin is essentially worthless, meaning that it is likely to fare much worse than other assets in the coming months,” Capital Economics said.
While this may be true as Bitcoin is completely digital and while it did cost money to mine its is still just a digit assigned to a (private) key. Therefore this is a valid statement for any currency, although they are printed on notes or minted as coins giving them some minor fundamental value. The rest of the value is just the belief that that currency is worth what we are told it is worth.
April 5th 2018 marked the 85 years since Franklin D Roosevelt issued “executive order 6102“. For those of whom are unaware of this order, Roosevelt instructed that all gold must be “hoarded”. “Any individual, partnership, association or corporation” in “possession of gold coin, gold bullion or gold certificates” must hand them over to the Federal reserve on or by the 1st of May. Those who handed over gold were not able to reclaim their gold, the Federal reserve announced in March 1933 they could no longer honour the conversion of currency to gold. This now gave the US dollar no fundamental value and was only worth what individuals were told their currency was worth.
The Bitcoin price can actually be linked to something known as Metcalfe’s Law: which states “that that the value of a network is proportional to the number of users squared”. One of the main factors which determines the Bitcoin price is the number of people using the currency. At this point in time Bitcoin is used more as an investment rather than a means of transferring wealth.
We can assume that a reduction in the number of transactions shows people are either holding the currency or are not willing to purchase Bitcoin to hold while the prices are reducing. It can be confirmed that new investors are not currently entering the market by analysing the Google search terms for Bitcoin:
The Bitcoin Price may continue to reduce further, but remember Bitcoin is worth whatever users believe it is worth… If people start to use Bitcoin more than it is being used now then the price will increase regardless of what any “analyst” claims about the price. The same rules applies to any currency.
See the live Bitcoin price – here