1 bitcoin is still worth 1 bitcoin fiat currencies are volatile while disappearing from view

Neither Fiat Currency nor Bitcoin are Free From Volatility

One of the things people love to refer to is how the Bitcoin price is relatively unstable. While there is a certain truth to this story, these same people tend to forget how volatile fiat currencies are as well. A currency like the US Dollar, Euro or Pound Sterling is as volatile as Bitcoin, although we are talking about lower volumes here. The question becomes whether or not there is such a thing as a “fair” comparison between fiat currency and Bitcoin regarding volatility.

Fiat Currency Creates The Illusion of Stability

A lot of people are under the impression that fiat currencies are somewhat stable. Nothing could be further from the truth, though, as any form of currency that can be used to transfer wealth is anything but stable. However, this type of volatility barely makes the news, and hardly anyone bothers to look up the numbers for themselves because of sticky prices.

It is important to keep in mind that there is a very good reason for why there are so many different fiat currencies in the world today. Nearly every country has its own currency, and not every currency is accepted in each country. Otherwise, there would be no need for foreign exchange offices, which is quite a large market right now.

Whenever somebody exchanges any currency into foreign currency, they will face a volatile exchange rate. Some days are more profitable for exchanging currencies compared to others. The reason for this is quite simple: fiat currencies fluctuate around the clock by nature.

The reason hardly anyone knows or cares about the volatility of fiat currencies is that mainstream media will hardly ever mention it. After all, it is in their best interest to mention this volatility as little as possible, or consumers might get worried. No one wants to create a widespread panic regarding the volatile nature of currency, but that doesn’t mean people should be misinformed.

In a way, fiat currency and Bitcoin are not so different from one another. Both types of currency are volatile, and both trade against major and smaller fiat currencies around the world. But there is also one major difference: Bitcoin is Bitcoin anywhere in the world, whereas fiat currencies have to be converted to and from one another as payments cross borders to find acceptance.

Bitcoin Is Not Stable Either, However…

Let’s make no bones about it, Bitcoin is a far cry from stable. However, that doesn’t necessarily have to be a bad thing, as this digital currency is not controlled by governments or central authorities. In a f ree market scenario, supply and demand rule, which creates volatility by nature.

One thing to keep in mind is how there have been a lot of early adopters and investors in Bitcoin. Most of these people have gotten their stash of bitcoin at very low prices, and they have sold — or will sell — part of that supply sooner or later. After all, anyone in their position would do the same.

Once people start to liquidate some of their bitcoins, negative pressure on the exchange rate will occur because Bitcoin is still a very “niche” market; these price changes can happen in spectacular fashion. Even though fluctuations of 10% or more on a daily basis are becoming rarer, they will still occur several times per year.

In fairness, there is no such thing as making a fair comparison between fiat currency and Bitcoin regarding price stability or volatility. Both types of currency are volatile by nature, yet they also go through periods of stability. Comparing one to the other is just an example of how uneducated economic experts around the world truly are.

Are Bitcoin and fiat really all that different? Let us know in the comments below!

Images courtesy of Get To Know Bitcoin, Shutterstock

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What Happens to Bitcoin After All 21 Million Are Mined?

Bitcoin is like digital gold in many ways. Like gold, bitcoin cannot simply be created arbitrarily; it requires work to «extract.» While gold must be extracted from the physical earth, bitcoin must be «mined» via computational means.

Bitcoin also has a stipulation—set forth in its source code—that it must have a limited and finite supply. For this reason, there will only ever be 21 million bitcoins ever produced. On average, these bitcoins are introduced to the Bitcoin supply at a fixed rate of one block every ten minutes. In addition, the number of bitcoins released in each of these aforementioned blocks is reduced by 50% every four years.

Key Takeaways

• There are only 21 million bitcoins that can be mined in total.
• Once bitcoin miners have unlocked all the bitcoins, the planet’s supply will essentially be tapped out.
• As of February 24, 2021, 18.638 million bitcoins have been mined, which leaves 2.362 million yet to be introduced into circulation.
• Once all Bitcoin has been mined the miners will still be incentivized to process transactions with fees.

The Supply of Bitcoin Is Limited to 21 Million

In fact, there are only 21 million bitcoins that can be mined in total. Once miners have unlocked this number of bitcoins, the supply will be exhausted. However, it’s possible that bitcoin’s protocol will be changed to allow for a larger supply. What will happen when the global supply of bitcoin reaches its limit? This is the subject of much debate among fans of cryptocurrency.

Currently, around 18.5 million bitcoins have been mined. This leaves less than three million that have yet to be introduced into circulation.

While there can only ever be a maximum of 21 million bitcoins, because people have lost their private keys or have died without leaving their private key instructions to anybody, the actual amount of available bitcoins in circulation could actually be millions less.

Bitcoin Mining Rewards

The first 18.5 million bitcoins have been mined in the ten years since the initial launch of the Bitcoin network. With only three million more coins to go, it might appear like we are in the final stages of bitcoin mining. This is true but in a limited sense. While it is true that the large majority of bitcoins have already been mined, the timeline is more complicated than that.

The Bitcoin mining process rewards miners with a chunk of bitcoin upon successful verification of a block. This process adapts over time. When bitcoin first launched, the reward was 50 bitcoins. In 2012, it halved to 25 bitcoins. In 2016, it halved again to 12.5 bitcoins. As of February 2021, miners gain 6.25 bitcoins for every new block mined—equal to about $294,168.75 based on February 24, 2021, value. This effectively lowers Bitcoin’s inflation rate in half every four years.

The reward will continue to halve every four years until the final bitcoin has been mined. In actuality, the final bitcoin is unlikely to be mined until around the year 2140. However, it’s possible that the Bitcoin network protocol will be changed between now and then.

The Bitcoin mining process provides Bitcoin rewards to miners, but the reward size is decreased periodically to control the circulation of new tokens.

Impacts of Finite Bitcoin Supply on Bitcoin Miners

It may seem that the group of individuals most directly affected by the limit of the bitcoin supply will be the Bitcoin miners themselves. Some detractors of the protocol claim that miners will be forced away from the block rewards they receive for their work once the bitcoin supply has reached 21 million in circulation.

But even when the last bitcoin has been produced, miners will likely continue to actively and competitively participate and validate new transactions. The reason is that every Bitcoin transaction has a transaction fee attached to it.

These fees, while today representing a few hundred dollars per block, could potentially rise to many thousands of dollars per block, especially as the number of transactions on the blockchain grows and as the price of a bitcoin rises. Ultimately, it will function like a closed economy, where transaction fees are assessed much like taxes.

Special Considerations

It’s worth noting that it is projected to take more than 100 years before the Bitcoin network mines its very last token. In actuality, as the year 2140 approaches, miners will likely spend years receiving rewards that are actually just tiny portions of the final bitcoin to be mined. The dramatic decrease in reward size may mean that the mining process will shift entirely well before the 2140 deadline.

It’s also important to keep in mind that the bitcoin network itself is likely to change significantly between now and then. Considering how much has happened to Bitcoin in just a decade, new protocols, new methods of recording and processing transactions, and any number of other factors may impact the mining process.

The latest significant events are the Office of the Comptroller of the Currency (OCC) letter in January 2021 authorizing the use of crypto as a method of payment, Paypal’s introduction of Bitcoin, and Tesla’s acceptance of Bitcoin to purchase Tesla cars and solar roofs. Tesla reversed course on accepting Bitcoin in May 2021, citing environmental concerns around the resources required to mine Bitcoin.

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Tesla cars can be bought in Bitcoin

Tesla customers can now buy their car with Bitcoin, company chief Elon Musk has said.

Mr Musk, a well known Bitcoin enthusiast, made the unexpected announcement in a tweet.

But Bitcoin’s value rapidly moves up and down — meaning the cryptocurrency price of the car could change day to day.

Tesla has invested heavily in the digital currency, buying $1.5bn (ВЈ1.1bn) worth of Bitcoin.

And that apparent vote in confidence saw Bitcoin’s value shoot to a record high.

Wednesday’s announcement also led to a modest bump to the price of Bitcoin.

Mr Musk tweeted Tesla would be running its own internal software to handle Bitcoin payments, which «operates Bitcoin nodes directly».

Nodes, in this sense, are the computers that process Bitcoin transactions.

And in an apparent bid to assuage fears of Bitcoin enthusiasts who want to see the ecosystem thrive, Mr Musk said: «Bitcoin paid to Tesla will be retained as Bitcoin, not converted to fiat [government-controlled] currency»

You can now buy a Tesla with Bitcoin

In the US, orders for new Tesla cars can now be secured with the equivalent of a $100 deposit in Bitcoin.

The facility would be rolled out to other countries in the coming months, Mr Musk said.

Bitcoin’s volatile price makes its use to buy real-world goods somewhat complicated.

For example, Tesla’s terms and conditions say if a refund is needed, it can pay in either the exact amount of Bitcoin paid or in US dollars based on the dollar price of the car — whichever it wants.

So if the price of Bitcoin shoots up before a refund is issued, the customer could lose out.

Paying attention

The announcement comes the same day US magazine Consumer Reports warned Tesla cars were recording and transmitting video footage, to help develop its self-driving technology, in a way that raised privacy concerns.

Other carmakers did not record or send the video they captured, it said — instead using the technology to warn a driver if they were not paying enough attention.

«If Tesla has the ability to determine if the driver isn’t paying attention, it needs to warn the driver in the moment, like other automakers already do,» it said.

John Davisson, from the Electronic Privacy Information Center, told Consumer Reports: «In Tesla’s approach, there’s always the possibility that insurance companies, police, regulators, and other parties in accidents will be able to obtain that data.»

Catching fire

Last week, Mr Musk denied reports his cars’ sensors and cameras could be used for spying on the Chinese military, saying Tesla would be «shut down» if that were the case.

And on Tuesday, CNBC reported a US federal agency was investigating complaints over Tesla solar panels catching fire.

A whistleblower who worked for Tesla had filed formal complaints with government officials over «unacceptable risks» in the installation of the solar panels, the report said.

Among the known fires are seven on the roofs of Walmart shops in the US, with the supermarket giant alleging negligence in the installation.

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Bitcoin’s Price History

Among asset classes, Bitcoin has had one of the most volatile trading histories. The cryptocurrency’s first price increase occurred in 2010 when the value of a single Bitcoin jumped from around $0.0008 to $0.08. It has undergone several rallies and crashes since then. Some have compared the cryptocurrency (and its price movements) to the fad for Beanie Babies during the 1980s while others have drawn parallels between Bitcoin and the Dutch Tulip Mania of the 17 th century.

The price changes for Bitcoin alternately reflect investor enthusiasm and dissatisfaction with its promise. Satoshi Nakamoto, Bitcoin’s inventor, designed it for use as a medium for daily transactions and a way to circumvent the traditional banking infrastructure after the 2008 financial collapse. While the cryptocurrency has yet to gain mainstream traction as a currency, it has begun to pick up steam through a different narrative—as a store of value and a hedge against inflation.

Though this new narrative may prove to hold more merit, the price fluctuations of the past primarily stemmed from retail investors and traders betting on an ever-increasing price without much grounding in reason or facts. But Bitcoin’s price story has changed in recent times. Institutional investors are trickling in after the maturing of cryptocurrency markets and regulatory agencies are crafting rules specifically for the crypto. While Bitcoin price still remains volatile, it is now a function of an array of factors within the mainstream economy, as opposed to being influenced by speculators looking for quick profits through momentum trades.

Key Takeaways

• Since it was first introduced to the world more than a decade ago, Bitcoin has had a choppy and volatile trading history.
• Bitcoin’s price has undergone multiple bubbles in a short history.
• The factors influencing its price have changed with Bitcoin’s evolution as an asset class.
• The narrative surrounding Bitcoin has shifted from being a currency to a store of value as a hedge against inflation and uncertainty around the U.S. dollar’s future purchasing power.

Bitcoin Price History

For the most part, Bitcoin investors have had a bumpy ride in the last ten years. Apart from daily volatility, in which double-digit inclines and declines of its price are not uncommon, they have had to contend with numerous problems plaguing its ecosystem, from multiple scams and fraudsters to an absence of regulation that further feeds into its volatility. In spite of all this, there are periods when the cryptocurrency’s price changes have outpaced even their usually volatile swings, resulting in massive price bubbles.

The first such instance occurred in 2011. Bitcoin’s price jumped from $1 in April of that year to a peak of $32 in June, a gain of 3200% within three short months. That steep ascent was followed by a sharp recession in crypto markets and Bitcoin’s price bottomed out at $2 in November 2011. There was a marginal improvement the following year and the price had risen from $4.80 in May to $13.20 by August 15.

2013 proved to be a decisive year for Bitcoin’s price. The digital currency began the year trading at $13.40 and underwent two price bubbles in the same year. The first of these occurred when the price shot up to $220 by the beginning of April 2013. That swift increase was followed by an equally rapid deceleration in its price and the cryptocurrency was changing hands at $70 in mid-April.

But that was not the end of it. Another rally (and associated crash) occurred towards the end of that year. In early October, the cryptocurrency was trading at $123.20. By December, it had spiked to $1156.10. But it fell to around $760 three days later. Those rapid changes signaled the start of a multi-year slump in Bitcoin’s price and it touched a low of $315 at the beginning of 2015.

The fifth price bubble occurred in 2017. The cryptocurrency was hovering around the $1,000 price range at the beginning of that year. After a period of brief decline in the first two months, the price charted a remarkable ascent from $975.70 on March 25 to $20,089 on December 17.

The 2017 hot streak also helped place Bitcoin firmly in the mainstream spotlight. Governments and economists took notice and began developing digital currencies to compete with Bitcoin. Analysts debated its value as an asset even as a slew of so-called experts and investors made extreme price forecasts.

As in the past, Bitcoin’s price moved sideways for the next two years. In between, there were signs of life. For example, there was a resurgence in price and trading volume in June 2019 and the price surpassed $10,000, rekindling hopes of another rally. But it fell to $7,112.73 by December of the same year.

It was not until 2020, when the economy shut down due to the pandemic, that Bitcoin’s price burst into activity once again. The cryptocurrency started the year at $7,200. The pandemic shutdown, and subsequent government policy, fed into investors’ fears about the global economy and accelerated Bitcoin’s rise. At close on November 23, Bitcoin was trading for $18,353.

The pandemic crushed much of the stock market in March but the subsequent stimulus checks of up to $1,200 may have had a direct effect on the markets. Upon the release of those checks the entire stock market, including cryptocurrency, saw a huge rebound from March lows and even continued past their previous all-time-highs.

These checks further amplified concerns over inflation and a potentially weakened purchasing power of the U.S. dollar. Money printing by governments and central banks helped to bolster the narrative of Bitcoin as a store of value as its supply is capped at 21 million. This narrative began to draw interest among institutions instead of just retail investors, who were largely responsible for the run up in price in 2017.

Continued institutional interest in the cryptocurrency further propelled its price upwards and Bitcoin’s price reached just under $24,000 in December 2020, an increase of 224% from the start of 2020. It took less than a month for Bitcoin to smash its previous price record and surpass $40,000 in January 2021. At its new peak, the cryptocurrency was changing hands at $41,528 on Jan 8, 2021. Three days later, however, it was at $30,525.39.

Analyzing Bitcoin’s Price History

Bitcoin’s novelty as an asset class means that its story is still being crafted. Its price has mostly mimicked the classic Gartner Hype Cycle of peaks due to hype about its potential and troughs of disillusionment that resulted in crashes. In the cycle’s structure, speculative bubbles are necessary to provide funding and drive a new technology’s evolution. And so, each swell and ebb in Bitcoin’s price has shone a spotlight on the shortcomings of its ecosystem and provided a fresh infusion of investor funds to develop its infrastructure.

Previous analysis of Bitcoin’s price made the case that its price was a function of its velocity or its use as a currency for daily transactions and trading. But crypto trading volumes are a fraction of their mainstream counterparts and Bitcoin never really took off as a medium of daily transaction. This is partly due to the fact that the narrative around Bitcoin has changed from being a currency to a store of value, where people buy and hold for long periods of time rather than use it for transactions.

Which Factors Influenced Early Bitcoin Trading?

During Bitcoin’s early days, liquidity was thin and there were very few investors in cryptocurrency markets. This state of affairs translated to wide price swings when investors booked profits or when an adverse industry development, such as a ban on cryptocurrency exchanges, was reported. The rise and fall of cryptocurrency exchanges, which controlled considerable stashes of Bitcoin, also influenced Bitcoin’s price trajectory.

Events at Mt. Gox, one of the world’s first crypto exchanges, especially contributed to mercurial changes in Bitcoin’s price in 2014. For example, the price tumbled from $850 to $580, a decline of 32%, after the exchange claimed to have lost 850,000 Bitcoins in a hack and filed for bankruptcy in February 2014. Even earlier, in December 2013, rumors of poor management and lax security practices at Mt. Gox had caused a steep drop of 29% in its price.

The other important factor affecting Bitcoin’s price in its early days was traction with mainstream online retailers: its price crossed the $1,000 threshold in January 2014 after online retailer Overstock announced that it would begin accepting Bitcoin for purchases.

Which Factors Influence Current Bitcoin Price?

In recent times, the matrix of factors affecting Bitcoin price has changed considerably. Starting in 2017, when Bitcoin garnered mainstream attention, regulatory developments have had an outsized impact on its price because it extends the cryptocurrency’s reach. Depending on whether it is positive or negative, each regulatory pronouncement increases or decreases prices for Bitcoin.

Interest from institutional investors has also cast an ever-lengthening shadow on Bitcoin price workings. In the last ten years, Bitcoin has pivoted away from retail investors and become an attractive asset class for institutional investors. This is construed as a desirable development because it brings more liquidity into the ecosystem and tamps down volatility. The cryptocurrency’s most recent rally in 2020 occurred after several respected names in finance spoke approvingly of its potential to develop into a store of value to hedge against inflation from increased government spending during the pandemic. The use of Bitcoin for treasury management at companies also strengthened its price in 2020. MicroStrategy Inc. (MSTR) and Square Inc. (SQ) have both announced commitments to using Bitcoin, instead of cash, as part of their corporate treasuries.

Industry developments are the third major influence on Bitcoin’s price. Bitcoin’s unique underpinnings, which span tech and finance, means that these developments pertain to both industries. For example, announcements of the launch of Bitcoin futures trading at the Chicago Mercantile Exchange (CME) and the Cboe options exchange (Cboe) were greeted with a price bump at crypto exchanges and helped push Bitcoin’s price closer to the $20,000 mark in 2017. Bitcoin halving events, in which the total supply of Bitcoin available in the market declines due to a reduction in miner rewards because of an algorithmic change, have also catalyzed price increases. The price of Bitcoin since the May 2020 halving has seen an increase of nearly 300%. Previous halving events in 2012 and 2016 produced significantly larger price gains of 8,000% and 600% respectively. Among many factors, the halving in the reward given to miners that also doubles the asset’s stock-to-flow ratio seems to have a large effect on Bitcoin’s price.

Finally, economic instability is another indicator of price changes for Bitcoin. Since its inception, the cryptocurrency has positioned itself as a supranational hedge against local economic instability and government-controlled fiat currency. According to reports, there is a period of increased economic activity on Bitcoin’s blockchain after an economy hits road bumps due to government policy. Countries like Venezuela, which have experienced hyperinflation of their currency, have seen huge increases in the use of Bitcoin as a means of transaction as well as storing wealth. This has led analysts to believe that the cryptocurrency’s price increases and global economic turmoil are connected. For example, capital controls announced by the Chinese government were generally accompanied by an uptick in Bitcoin’s price. The 2020 pandemic shutdown produced macroeconomic instability on a global scale and galvanized Bitcoin’s price, resulting in a record rally.

Bitcoin’s Price History FAQ

At What Price Did Bitcoin Start Trading?

Bitcoin first started trading from around $0.0008 to $0.08 per coin in July 2010.

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