The value of the USD and other normal currencies are affected by different factors then the Bitcoin, while usually the value of $1 depends on balance of trade, price of oil, gold and many other things with Bitcoin it depends on different factors which are completely new to the economy. Lets take a look at the different factors that affect the value of a Bitcoin
1. Supply and Demand: The first one and currently the most important one seems like nothing we haven’t heard of before, The supply and demand heavily affects the value of the bitcoin specially because it is a new currency. Since Bitcoins are mined by miners the overall value of a Bitcoin will decrease over time since more Bitcoins are created and the demand might be the same. However, a simple thing like a news article reporting of someone losing a few thousand bitcoins when losing a hard drive could again increase the value of the bitcoin immensely. The demand of Bitcoins has been huge lately with the increase of media attention to the Cryptocurrency and the creation of Alt coins.
2. News, media & user Trust: Virtual Currencies have a lot of potential and are already widely exploited by many users, but a big issue to the average computer user (which maybe only reads the news and looks at its facebook profile) might find the currency confusing and even scary, but there is no doubt that these people are 80% of the internet. News reports on Bitcoin have made people aware that it exists and has overall done Bitcoin good but it has also caused “fear” by users after reporting (for example) that thousands of dollars have been hacked through a simple DDoS something that if it happens to your bank, you at least get your money back.
3. Benefits of being a new currency: New currencies don’t have as much advantages as existing currencies but Bitcoin has a huge one which almost always seems to drastically affect the price. This is if stores, ecommerce website or other mayor companies which sell a service or product allow Bitcoin as an official payment. (Check out our post on Bitmap which is an app that shows near stores that accept bitcoin as payment)Since an incredibly small percentage of stores has already done it, there are many more to come since the biggest (like paypal, amazon etc.) haven’t embraced the virtual currency yet.
4.Speculation: No matter what currency Speculation can always decrease or increase the value, but with a currency like the USD since there are so many billions of dollars in the world it is hard to see a big difference in the value of the currency. There is a limit of Bitcoins that can be made, making it much more vulnerable for speculators.
5.Alt coins: Alt coins can be created by anyone (seriously anyone can do it) and this is awesome, yet this also creates issues. All though the value of a new alt coin is incredibly low compared to Bitcoins, small things like a news post by a mayor publisher could temporarily boost the price of that Alt coin allowing miners to buy a lot of bitcoins with very little effort and later just “abandoning” this alt coin (these users abuse the fact that it is so easy to create a currency).