Bitcoins are something you read about daily, so you know their price is subject to volatility. But have you ever questioned yourself what are the reasons behind it?
BTC value is considered to be depending upon the extent of transactions made in the cryptocurrency – the more transactions users conduct, the bigger the price is. Bitquant Research Laboratories, a Hong Kong company offering research and development support to open-source monetary systems has, however, a different opinion. Basing on their own macro-economic model of Bitcoin, Bitquant suggests that the value of the cryptocurrency in fact largely depends on users’ desire to accumulate it. The company even provides a corresponding mathematical formula:
Bitcoin price = 1 / (BTC transaction likehood * constant)
As we all know, there are also several other factors affecting BTC value, including market data, latest news, and even rumors. Any of them is capable of making Bitcoin value fluctuate in either directions, and as soon as media mentions something related to more or less major BTC hoarding, its price drops immediately. This all has no connection to the stability and reliability of bitcoins, as the cryptocurrency looks more than promising as a payment method alternative than can be used alongside traditional real-money transaction systems.
Today, even Bitcoin users are somehow unconfident in the possibility for BTC to become the universal future means of settlement, as they are not sure whether it will still be mined and used in the coming years. The thing is, Bitcoin may truly be at risk if there as many BTC users by 2020 as it is now, otherwise, as the number of Bitcoin enthusiasts starts to grow, the cryptocurrency is more than just likely to be used in parallel with ‘regular’ money. On one hand, the latter scenario may lead to the accumulation of substantial BTC amounts causing recession in the system, which is especially unwanted considering the Bitcoin mining limit of 21 million units. Still, Bitquant believe that as soon as BTC price goes up, people are more likely to start using coins instead of fiat money. And vice versa, its price will fall if there are more Bitcoin transactions conducted and BTC amounts accumulated in the system. Again, as soon as the price reaches the bottom, people tend to avoid making payments with bitcoins they have, which results in the rise of the price. According to Bitquant, this never-ending circle situation is positive for Bitcoin, as it helps it stay away from the so-called liquidity trap.