Although bitcoin investors and enthusiasts all over the world are impatient for the next bull run where bitcoin price breaks its previous all-time high (ATH), associating the value of bitcoin with its price isn’t justified. As bitcoin has gained popularity, often, the price of bitcoin is linked with its value however the reality differs substantially.
The concept behind the price of bitcoin is very easy to comprehend as it is dependent on the fundamentals of supply and demand. If the demand for bitcoin exceeds its supply, the price tends to increase. On the other hand, if the supply exceeds the demand for bitcoin, the price of bitcoin decreases. This shows that the sale and purchase of bitcoin get to decide the status of bitcoin price in the crypto market.
Therefore adjusting according to the trading activity that impacts the supply and demand equilibrium, bitcoin price is not a good measure to estimate or guess the value provided by bitcoin. Instead, the utility and use cases of bitcoin should be scrutinized to get an overall idea of actual value offered by bitcoin.
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Like gold, bitcoin has a fixed and finite supply. There will be only 21 million bitcoins and after all of them are created, no new coins will be created. Similar to gold in another aspect, bitcoin is mined and resources such as internet connection and high computing power are required for mining bitcoin. In return for deploying resources to the bitcoin network, miners are awarded12.5 bitcoin.
After every four years, the award of miners is cut into half due to bitcoin halving. While miners get 12.5 bitcoins at the moment for adding a new block to the bitcoin network, following bitcoin halving scheduled next year, miners will get 6.25 bitcoins instead of 12.5. This explains that besides fixed total supply, the rate of bitcoin supply will decrease with time, hence, introducing elements of scarcity in the world’s truly decentralized cryptocurrency.
Enabling cross-border payments, bitcoin is a completely decentralized crypto asset not capable of being controlled or manipulated by any authority. This makes bitcoin, free from inflation, a perfect replacement for fiat currencies that are losing their value due to inflation. This explains that bitcoin’s usefulness due to its nature makes it an extremely valuable asset so no matter how high or how low the price of bitcoin gets, the value of bitcoin determined by its attributes remains constant.