When you are entering the cryptocurrency world you might have the question – How Does Bitcoin Has Value? Well, the answer to this question is simple. But for that, we are going to discuss the various factor which affects the value of the Bitcoin. So that you will be able to understand how does it has value?
Bitcoin is the cryptocurrency which came into the market with an agendum of replacing the fiat currency. This purpose has been achieved by it as people are using it for the sale and purchase for the various products. So here we are going to discuss the framework of the Bitcoin which will not only help you understand how it has value but also about its future.
How Does Bitcoin Has Value?
There is various assumption regarding the Bitcoin which helps in setting up the framework of the Bitcoin. Here is the list of assumptions that will help you understand:
Supply Of Bitcoin
It is estimated that there is a fixed amount of Bitcoin that will come in the market and that amount is 21 million. At present, there is around 17 million has been mined and the release of the Bitcoin will decrease after the gap of every four years.
There are a continuous fall and rise in the price of the Bitcoin, this has attained a lot of media attention. Some think that it is a bubble which can burst at any time.
But with the rising gain in popularity, there is an increase in the investors. This has given the legitimacy and the issue of volatility is not an issue now. As large people, the number of people is adopting the way of Bitcoin.
Fractional Reserve Banking
The most important thing about the Bitcoin is that it is not controlled by the banks. This is something which has given a lot of popularity to it and it is expected that it is never going to be controlled by the banks. It will always be backed by the Bitcoin owners only.
To consider the value of the Bitcoin we will take two things – Bitcoin as the currency and Bitcoin as a store of value. The value of this can be taken by you according to your choice but here we are going to consider 15% of both.
In this, the simplest way is by looking at the current worldwide value of Bitcoin in all the exchanges and the stores of value comparable to Bitcoin. This will help you to project the value of the bitcoin. In this model, we are going to focus on the predominant medium of exchanges which are backed by the government.
The money supply for that is broken into four different buckets M0, M1, M2, and M3.
M0 – The currency in the circulation
M1 – M0 + demand deposit like checking account.
M2 – M1 + saving account and small-time deposit.
M3 – M2 + large time deposit and money market fund.
M0 and M1 will be considered as the medium of exchange. Whereas M2 and M3 will be considered as the money used as a store of value.
The value of the M1 is roughly around 25 trillion USD which serve as the countries value of the medium of exchange. Whereas the M3 except M1 is roughly around 45 trillion. By considering other things like the value of gold and silver in the country it is around 47.1 trillion.
If the bitcoin is able to achieve 15% of it then you can estimate the future of the bitcoin is quite good. But you have to understand that this is quite a long process. During this time it is necessary that the faith of the people does not decrease. If that happens then the price of it can fall and will not be able to achieve the desired result.
It is important to understand How does bitcoin has value? so that you can invest in it accordingly. But the most important thing for the future of the bitcoin is the trust of the people in it and the adoption of it in the market and people. If this decrease then you cannot expect the price of the bitcoin to rise.