Well, at the end of the decade, bitcoin, the leading cryptocurrency has hit an all-time high in December, 2020. It is now being considered the highest ROI investment of the time, and if you are wondering why bitcoins are so expensive, well it is complicated.
To begin with – let’s determine how bitcoin price is determined in the market. That might allow us to have a clearer picture. The four facts that go into the determination are the supply of bitcoin, market demand, the existence of other cryptocurrencies and their prominence, and the trading rate it has.
Limited supply of Bitcoins – unlimited demand
While bitcoin demand continues to rise, one needs to understand that bitcoin supply is limited. Since its inception in 2009, the total number of bitcoins that can be mined is 21 million. Out of which, 18.5 million has already been mined in ten years or so. The fact that only 1.5 million is out there to be mined for future BTC enthusiasts is one of the biggest reason why the price of bitcoins is so expensive. For gold, which is also a ROI investment, the total number or quantity that can be mined is not determined.
Financial experts believe bitcoin is playing the same role gold played in 1970s, and hence the constant comparison of the two. After the maximum number of BTC mining has been reached, no new coins will be generated. So, at the current rate of adjustment of BTC block rewards, the last bitcoin mining would happen in the year 2140. This is only an estimate that is dependent on a chain of other factors. Experts think that the introduction of new coins would slow down over time.
If the demand of bitcoins increases at a faster rate than the supply can meet, then the prices of bitcoins would inevitably go up – and that’s what is being foreseen by a lot of financial experts today.
The glam of bitcoin
The charm of bitcoin comes from the simple fact that it is a private and decentralized currency that also has a transparent set of rules, hence a lot of people prefer it over fiat currency and the centralization and regulation they come with.
It is an efficient means of transferring money – and I mean, why won’t people prefer it? It has no high trading or exchange costs that exist for fiat money. Its value is universal, and the same in all countries. It has no bureaucratic delays or regulatory authorities, which intervene in your transactions or put a cap on the amount you can. You need a couple of seconds, at best, to transfer money – and there are no weekly delays or high transfer fees that you have to pay to any centralized agency.
When you keep your money within a bank, you have to be at the mercy of that financial institution for the proper protection of your money as well as for other reasons. But, bitcoin has no centralizing agency – you can directly transfer it to another person, and you don’t need third-party interference for that.
Popularity of Bitcoin
Its popularity is owing to the fact that more and more companies and real-life retail owners are accepting bitcoin as a mode of payment. This has lent bitcoin a big sense of genuine reliability that non-believers thought was missing in this digital currency operating as a store of value.
Besides, with the popularity of bitcoin going up – it has also become more secure in the last decade and hence, there’s more reliability associated with it. Blockchain technology is very flexible and also operates efficiently outside the cryptocurrency space, and hence more and more people are adopting this store of value in comparison to other investments and mode of payments.
There are double the number of bitcoin wallets available in the market now, and with ATMs suited just for bitcoin withdrawals, and bitcoin cards, it is not too long back in the future when we can rely on bitcoin to be the universal currency that revolutionizes the economy and how financial institutions and structures perform and operate. Regardless of the size of the transactions, bitcoin is transferred in less than minutes between two parties.
The ease of transferability is a big aspect of any currency and how popular it is. Fiat currency has been popular, and in usage, but is also government-controlled. Transferring fiat currency takes weeks, at an end, and also comes with a fee – it is only popular as a mode because this is what we are familiar with, and this is also government-sanctioned, which makes it reliable. While the aspect of centralization or a certain bit of regulation is coming up to bitcoin too, it will be a long time till any of it takes off – because the delight of bitcoin comes from how decentralized it is. This is an endless debate and you can read more here.