What determines the price of Bitcoin?

By Moris Beracha

Bitcoin has lost over 50% of its value in less than six months. Shortly before Christmas, each token was trading at over $ 19,000. Today it is worth a little over $ 8,400. Bitcoin investors predict a meteoric rise that will recommence any day now. However, Bitcoin has refused to cooperate, by staying stubbornly stuck below 10,000 for the last two months.

According to Forbes, the "labor theory of value" essentially says that the price of a good or service is determined by the work required to produce it. But, other schools of economics say that the value of a good or service is whatever someone will pay for it.

Moreover, if the producer values ​​the effort more highly than what the market will pay, they will stop producing it. So if prices fall, therefore, marginal producers tend to drop out. But as time goes by, more and more producers drop out until prices rise enough for the market to clear.

Something similar happens when Bitcoin falls: marginal miners drop out, as the cost of mining bitcoins begins to exceed the rewards. However, Bitcoin has an automatic adjustment mechanism. The algorithm puzzles that miners must solve become more difficult when Bitcoin’s price rises and less difficult when the price falls.

Another important aspect, writes Frances Coppola for Forbes, is that the real job of miners is not Bitcoin production, but transaction verification. Without transaction verification, bitcoins cannot be bought, cannot be sold, cannot be spent, cannot be earned. If mining ceased, existing bitcoins would become immovable, and an immovable asset is worthless.

What determines the value of Bitcoin is whether people are willing to transact using it. That includes buying and selling bitcoins.

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