HOW THE PRICE OF BITCOIN IS CALCULATED?
Many questions you might want to ask and know as a newbie may be- Bitcoin Price Calculation
It is important to remember and take into consideration that it works no different from other products and local currencies like the naira and the usd.
For example, lets consider the price of tomatoes
What is the price of a tomatoe?
Its price is dependent on 2 things
- What the seller wants to sell
- What the buyer wants to buy
Say john is a tomatoe seller and sells his tomatoe for $4, and then Mary comes along with $3 to buy this tomatoe.
You will find out that no trade will occur until John reduces his price by $1 or Mary raises the bar with $1. What this means is that the price of tomatoes are nothing other than what the buyer and seller agrees to. If its the tomatoe season, then there is plenty of tomatoes in the market, what this means is that there is more supply of tomatoes than the demand,invariably the price of tomatoes will fall drastically but in drought and scarcity, when there are less tomatoes in the market and people still need it, the price of the remaining few in the market will increase.
But then mark these words, ” No trade will occur unless the buyer and seller agrees to a price”, what this means is that the price is set by the buyer and seller.
This same rule or principle applies to fiat currencies(naira and dollars) and bitcoins.
This prices just like in tomatoes are only what the buyer and seller says it is, although unlike tomatoes, the naira is homogenous and does not vary in size and shape which also affects the price.
But then if you hold 1 naira, it is being traded everyday in the local market. Millions of buyers and sellers trade your naira for other foreign currencies, so while you might observe and think its stable, today, 350 naira might get u $1, tomorrow its 370, the next day its 340.
Its value changes continuously with the market demands and supply.
This also applies to Bitcoins,it might help if you think of it as another currency that exists online secured by cryptographs and one that you are not so familiar with.
Bitcoin Price Calculation
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