Bitcoin is like a commodity. The price of bitcoin is determined by the market in which it trades. In other words, its price is determined by how much someone is willing to pay for that bitcoin. The market sets the price of bitcoin as same as Gold, Oil, Sugar, Grains, etc. is determined. Bitcoin, like any other market, is subject to the rules of supply and demand. i.e.
- More Demand, Less Supply = Price Goes Up
- More Supply, Less Demand = Price Goes Down
No one, in particular, sets the bitcoin’s price nor we can trade it in one place. Each market/exchange determines its price based on supply and demand. Traders can buy and sell bitcoinon the Luno Exchange.
If you want to buy and selling bitcoin, you must have to choose a particular exchange. For example, the Luno exchange sets a specific price at a specific time for a specific market. Here, you have not confused that Luno exchange fixes the bitcoin price. Instead, the traders who are buying and selling on Luno exchange sets the price. The price of bitcoin can fluctuate at the moment, which is depending on who you talk to, and it is often different from country to country.
Note: If a bitcoin owner sets the prices of their coin too high, no one will buy it. The owner will either have to reduce their price to a reasonable rate or just go without a sale. If the owner set the price too low, the coin will sell immediately and be taken off the market.
Why does the price of bitcoin change so often?
It is because the price of a bitcoin is very volatile. Since the number of bitcoins is limited in circulation, new bitcoins are created at a decreasing rate. It means that demand must follow this level of inflation to keep the price stable. The bitcoin market is still relatively small as compared to other industries. Therefore it does not take significant amounts of money to move the market price up or down. Thus, the price of a bitcoin is still very volatile.https://imasdk.googleapis.com/js/core/bridge3.505.0_en.html#goog_771609359
It is not only the bitcoin exchange rate seems to change from day-to-day. There is also the price of many things, such as stocks, currencies, gold and many other products can be volatile. It can be moving up and down a lot against a base currency (such as the US dollar).
Some of the factors behind bitcoin volatility are:
- Bad news hurts adoption rate. The news that scare Bitcoin users include geopolitical events and statements by governments who are regulating the bitcoin.
- There is an uncertainty of future bitcoin’s value.
- Large currency holder risks. It means the bitcoin investors who have holding a large currency is not much clear how they would liquidate it into fiat currency without severely moving the market.