Bitcoin is the one of the first and most widely recognised of the so-called ‘cryptocurrencies.’ Unlike other currencies, it sits outside the control of a particular central bank. It is not subject to interest rates or quantitative easing like other currencies are.
The price of Bitcoin is still calculated against other currencies, with the US Dollar being the usual benchmark. Bitcoin is increasingly being used as a substitute for cash transactions, both online and in over the counter transactions.
What drives the Bitcoin price?
The supply of Bitcoin is driven by ‘miners’, basically those with access to considerable amount of spare server capacity who are happy to loan the use of those servers in return for Bitcoin. Because there is a limited number of people with access to the kind of computing power needed to mine Bitcoin consistently, there is still a limited supply for the currency.
Demand for Bitcoin is high, however. Part of this is being driven by a desire on the part of private individuals to have access to a cross-border currency which is not subject to strict currency controls or surveillance. It is hard to provide accurate data on Bitcoin holdings because of this level of privacy.
As with any market, if demand outstrips supply, the price will rise.
How volatile is Bitcoin?
Bitcoin’s greatest challenge, and the same applies to other cryptocurrencies, is public trust. If there is a general loss of confidence in cryptocurrencies, the price will crash. The ability of investors to exit the Bitcoin market en masse has yet to be demonstrated, but negative news about the currency, is likely to drive prices down.
Thus far, most governments and regulators have not sought to crack down too hard on Bitcoin markets. That could easily change, again prompting a rush for the door.
Bitcoin price chart
How can you trade Bitcoin?
There are also specialist Bitcoin trading platforms in existence that focus on Bitcoin and other cryptocurrency markets.
Investors must always take care that any party they trade with is properly regulated and that they have access to recourse if problems occur.
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