What Determines the Price of Bitcoin? May 04 2018
When someone ask “what is the price of Bitcoin right now?” they are looking for the market price of Bitcoin, which is not set by a group or company but is discovered by the market in a process known as price discovery. Price discovery is the over all process by which the market price is set, it includes supply and demand, intangible factors such as investor risk attitudes, and the overall economic and geopolitical environment. This might seem pretty subjective, and it is but really what is boils down to is Buyers want to buy Bitcoin for as little as possible and Sellers want to sell Bitcoin for as much as possible and a lot of factors come into play but they must agree on a price or one party must cover the cost of the difference or spread. In crypto exchanges there are always takers and makers, and takers drive the price of the crypto. A taker is the person willing to cover the spread and finish the transaction; the maker is the one who gains the spread. For example, lets say that the buying price of Bitcoin is $9,350, and the selling price is $9,400, so the spread is $50, whichever party is more incentivized to close the deal will cover the spread and become the taker. Let’s say that buyers convinced that price will hit $10,000 by Friday, are acting as takers. Buyers believe they’ll profit by buying below $10,000. This makes them more likely to pay the spread to buy up all the coins on offer at $9,400—they expect to make $600 minus the $50 spread. Once buyers have absorbed all the coins offered at $9,400, the next best ask then becomes coins offered at $9,450—and after that, coins offered at $9,500, and so on, up the ask list. If buying is aggressive, sellers soon realize it and start raising the prices of their asks. This continues until buying pressure is exhausted, at which point the process will reverse. Over time, these impulses drive the price up or down. Determining the price of crypto currencies isn’t as mysterious as it seems, Buyers see bad press for Bitcoin or political action, they believe the price of Bitcoin will drop and are less willing to be the taker, so the price does drop. If collectively we bought Bitcoin as if the price would increase and were willing to be takers, the price would increase. So everyone, clap yours hands and say “I Do Believe In Bitcoin”!
Here are a few articles about determining the price of Bitcoin: