Bitcoin’s price is probably the most commonly searched aspect of the digital currency. This post explains how the price is determined and what makes it go up or down.
Why is Bitcoin Going Down / Up Summary
Bitcoin’s price is defined by the last trade conducted on a specific exchange. Price goes up when buying pressure increases, and goes down when selling pressure increases. There are several major factors that can cause the price to go up or down such as:
- Media hype / FUD
- Lost of trust in fiat currencies
- Institutional adoption
- Supply shortage
- Dumping of coins on the market
That’s what affects Bitcoin’s price in a nutshell. For a more detailed explanation keep on reading, here’s what I’ll cover:
- What is Bitcoin’s Price
- What Determines Bitcoin’s Price?
- Why is Bitcoin Going Down?
- Why is Bitcoin Going Up?
- Frequently Asked Questions
1. What is Bitcoin’s Price?
When talking about Bitcoin’s price, people are usually referring to either the USD price on a leading exchange (such as Bitfinex, Binance, or Bitstamp) or a composite price made from the average of multiple exchanges’ prices (e.g. CoinGecko).
When people talk about the price on a certain exchange, they mean the price of the last transaction made on that specific exchange.
So for example, if the price of Bitcoin on Bitstamp is $10,000, this means that the last trade made on Bitstamp was closed at $10,000. Once a new trade is conducted, the price will be updated accordingly.
As Bitcoin is a decentralized asset that trades on many exchanges and between countless individuals around the world, there is, in fact, no singular Bitcoin price.
Each exchange has its own price for Bitcoin, although these prices are usually quite similar. This opens the door to arbitrage opportunities for experienced traders with enough capital (explained below).
As there’s no official Bitcoin price, certain sites and companies make a composite index price available. This price is calculated by weighting the prices of various leading currencies by volume and combining them as an average. Continue reading…