Bitcoin Rand Value and Price Discovery
Bitcoin is becoming more and more popular lately. Probably because its price is going up all the time. But why does bitcoin have value in the first place? How can something digital and intangible have so much value?
BITCOIN TO RAND VALUE? WHY DOES BITCOIN HAVE VALUE AND HOW IS THE PRICE DETERMINED?
The reason that Bitcoin has value is because it has all the same aspects that gives any item value – Scarcity & Usability with a few extras like privacy and fungibility thrown in it is the perfect currency.
Scarcity and bitcoin:
Bitcoin is rare. There are currently only about 16.5 million bitcoin in circulation and there will never be more than 21 million. This limit is very widely known, meaning that all buyers know they are getting their hands on something exclusive. Exclusivity increases the price of something because of its “hard to get” factor.
Rarity is one of the fundamentals of economics and an example of this is the Hyper-car market. People pay millions for these exclusive vehicles because of their rarity. Take the Lykan Hypersport for example. There will never be more than 7 in the world and that (among other reasons) is why it is the most expensive new car in the world, rarity.
Usability and bitcoin:
Along with scarcity, bitcoin (or any other valuable item) must have a use for it to be valuable. We can use the same example of Hyper-cars to explain this concept.
These cars are not only expensive because they are difficult to get your hands on. Their value is increased because of the specific function that they serve to the rich and famous. They serve as a fashion statement or an indication of immense wealth and status. i.e. If a smaller car brand like Tata made only 7 of their “Indica’s” would a celebrity drive it for its exclusivity? NO! Why? Because it serves of no use to them.
So what can a bitcoin’s uses be?
Well bitcoin has several uses that make it an incredible investment. Firstly, bitcoin is increasing in value consistently and has no indication of slowing down soon. Furthermore, bitcoin is one of the safest ways to store large amounts of value. Along with this feature, bitcoin is immediately accessible. Above all though, bitcoin is currently the most used digital currency. Therefore is supported as a viable payment option in more companies than any other crypto-currency.
Bitcoin is also divisible, which means it can be paid in fractions should you want to pay someone only a small amount.
How is the price of bitcoin determined?
The ice3x is a full orderbook exchange, which means that the buyers and sellers on the exchange determine the price of Bitcoin. In other words, the continual trading of Ice3x clients on the exchange causes the price to fluctuate on a daily basis. When calculating price is important to consider what traders are willing to pay. This is based on the perception that clients have of a product.
Bitcoin’s past value
If a person believes that the value of bitcoin is going to increase in the future (and we’ve already established that it will) then that person will be willing to pay a higher price for the product now. Price is also affected by the way it has performed in the past. If we were to look at bitcoin’s past value we would see that it fluctuated a bit at the start because not many people knew about it. However, it has always had a steady growth since then. This, therefore, inspires confidence in prospective buyers because they are investing in something that will most probably continue increasing in value. The past serves as evidence for bitcoin’s lucrative potential.
Why does the Bitcoin Rand Value differ between exchanges?
Because there is no set price for what the going rate of bitcoin should be. Instead, bitcoin works on a supply and demand basis. What people are willing to pay for it in a given situation. Therefore, people might be willing to pay more for it in America, thereby giving it more value on an American exchange.
The price of bitcoin
It is also important to understand that the price of bitcoin is not based on a single currency (like the USD). So, for example, if the price of the US dollar increases, it will have no affect on the price of bitcoin. Only the traders on one specific exchange can alter the price of bitcoin on that particular exchange. I.e. If there are more buyers than sellers the price will increase and vice versa. These factors are external and they in turn influence what traders do. There are also costs to consider, so a trader in one country could buy bitcoin in another country and currency for less than their own. It is all down to supply and demand, in the local market. The exchange does not set the price or influence the Bitcoin Rand value.
Why does the price differ from the price on Google?
The simple answer here is that Google works on averages. When you search for the bitcoin rand value, Google follows this process. It looks at the prices of bitcoin on several different US platforms and then calculates the average price. From this average price (which is in USD) Google converts the price to Rand and that is the amount you see.
This is, however, very inaccurate because each exchange’s price is different according to the supply and demand of their traders. As we mentioned earlier, every exchange’s price is calculated based on what their particular buyers are willing to pay. Therefore, working on averages – like Google does – will never give you an accurate indication of the true price of bitcoin.