Bitcoin is a decentralized cryptocurrency which means as opposed to fiat currencies; there is not a institution like a central bank that affects the supply of BTC or controls it in any way. Actually, the inventor of Bitcoin made sure Bitcoin’s supply is not impacted by any external party. Hence, its price is formed thanks to the relationship between supply and demand.
However, there are certain events and factors that shift this relationship, and by doing so, they impact the price of Bitcoin. In this article, we explore the factors that impact the supply and demand for BTC.
The process of bitcoin mining has a great influence on the supply of Bitcoin supply. In fact, it was created as a way to regulate the available number of BTC. Essentially, through Bitcoin mining, new blocks of transactions are added to the network, and when a block of transactions is validated, new BTC enter into circulation.
For this purpose, Satoshi Nakamoto created Bitcoin protocols to impact the rate at which new BTC are being created. Firstly, the level of difficulty of mining is changed every two weeks automatically on the blockchain network according to the collective computing power. In other words, when the collective computing power in the network increases, so does the difficulty of mining.
Secondly, Nakamoto programmed the Bitcoin halving, a major event in the Bitcoin community, to occur when 210,000 BTC are mined. This event has the greatest influence on the supply of Bitcoin because it halves the block reward of the miners.
Today, after the halving in May, the block reward is 6.25 BTC. Therefore, the miners do not have the same incentive to continue to mine on the network because it’s getting more expensive as the reward is decreasing while the competition on the network is rising exponentially. To put it in a nutshell, the supply is not rising as quickly as the demand.
Exchange sites also affect the demand for BTC, mainly because today, there is a huge number of online trading sites to choose from. One great exchange site is Bitcoin Lifestyle, known as a cutting-edge trading robot that carries out trades for you.
You can visit the Bitcoin Prime to create your account, it is not necessary for you to have great knowledge about Bitcoin and online trading. Furthermore, the platform is highly intuitive and user-friendly, so you can easily register and start trading.
Otherwise, thanks to a vast number of online trading sites, their accessibility on devices, the volumes of trading are quite high, which means the demand for BTC is surging more quickly than the supply. This is also explained by the liquidity of Bitcoin, as it is easy for anyone that wants to quickly get BTC or sell Bitcoin.
Usability of Bitcoin
Otherwise, the usability of Bitcoin also affects its demand. For example, there are Bitcoin users that want to be able to purchase items with Bitcoin. Because of this, the number of companies that accept BTC payments is increasing, this also positively influences the demand. In addition, more institutional investors and reputable brands like Tesla, for example, are investing in Bitcoin. As they are buying a huge volume of BTC, this is another factor that moves the price of Bitcoin.
The overall supply of BTC was predetermined to 21 million BTC. Today there are about 3 million BTC left to be mined. With the digital scarcity of Bitcoin, on top of the diminishing available supply, Bitcoin becomes a precious cryptocurrency. In contrast, the demand is rising, and as Bitcoin has a fixed supply, the price is increasing. Consequently, the last bull market phase is the result of this interaction between the supply and the demand.