How Is Bitcoin Valued?

Bitcoin is a major digital currency or cryptocurrency. Unlike the dollar, euro, pound, yen, peso, and other government-backed currencies, cryptocurrencies are not officially supported by any central bank or government. The currency has traditionally traded in an open marketplace similar to the stock market, where buyers and sellers can exchange their local money for bitcoin or vice versa.

While some cryptocurrency exchanges host trading platforms that have slight variations in prices, the overall market price of bitcoin is the latest price at which a transaction occurred. However, bitcoin value is much different and depends on the investor—some say that the intrinsic value of bitcoin is much higher than market value; others claim bitcoin might not be worthless.

Learn more about how bitcoin’s price is set, how to interpret its value, and how you can get in on the latest bitcoin action.

Who Sets Bitcoin’s Price?

The value of bitcoin is determined by the same market forces that influence the value of any other goods or services. If more people want to buy than sell, prices will likely increase. If there are more sellers, the price tends to fall. This is similar to the stock market, real estate, and most other open marketplaces.

When an open buy order and sell order meet at a common price, the order executes. That final trade price is the current bitcoin value. You can find the most recent bitcoin price using a site like CoinMarketCap or a public blockchain explorer, which is a site that lets anyone review any bitcoin transaction that’s ever taken place.

You may find that some exchanges list different bitcoin prices. This is because some exchanges operate independently of the open market and serve only their members, so prices may vary slightly from the overall market. Sometimes this is beneficial because you may be able to buy bitcoin without paying network fees, which may be more than the exchange’s fees. Additionally, there is a “spread” in bitcoin's price on some exchanges—the difference in the buy and sell prices—that can make it slightly higher or lower than the market price.

Bitcoin’s Value (Price) vs. Valuation

When buying or selling any financial product, it’s important to distinguish between price, value, and valuation. The value is the current price, or what someone is willing to pay for something right now. Valuation is a complicated analysis of an investment.

Bitcoin's value is the current market price; its intrinsic or actual value is difficult to pinpoint.

Valuation

In the stock market, analysts review a company’s financial performance and stock market prospects—the results are quantified and then rated with community-accepted metrics, which establish the stock's actual value. These metrics can then be compared to the performance of other stocks to achieve a relative value.

Bitcoin can be compared to other cryptocurrencies to achieve a relative value. However, it's difficult to compare the intrinsic value of stocks or bonds to bitcoin because they are different instruments.

Value

Value is relative to the investor. If bitcoin meets your investing goals, risk tolerance and gives you the returns you want at a price you're willing to pay, that price is its value. This is the market price you see when you look up bitcoin's price.

Factors That Could Impact Bitcoin’s Price

Bitcoin is a unique asset that is relatively new, so the future is generally considered uncertain. While it’s about a decade old, it’s still a Wild West type of frontier in many ways, with future regulations uncertain. While it’s possible the value of bitcoin could surpass $100,000, it could also drop to zero. 

The biggest single factor that could impact bitcoin’s price is likely government action. Regulatory agencies in the U.S. could implement new laws or regulations that severely limit bitcoin or even make it illegal.

Outside influences can drive bitcoin prices up also. Tesla CEO Elon Musk’s Tweets, for example, have had an impact on crypto market prices. Catherine Wood, CEO of Ark Invest, is another major Bitcoin advocate who may help lead the market upward. In addition, early investors who built up a significant bitcoin holding, sometimes known as bitcoin whales, can swing the markets by entering a large transaction.

It’s important to understand that investing in bitcoin is highly volatile and risky. While you could buy bitcoin and earn a big return, there are also major risks of loss. For most people, it’s best to limit bitcoin investing to funds you can afford to lose.

Frequently Asked Questions (FAQs)