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What Determines The Bitcoin Price?
Many are closely watching the price of Bitcoin, but few know how it is determined. Bitcoin is very different from traditional assets, such as stocks and commodities, so the calculation of its quotes is associated with some features. We will tell about them in more detail.
What does Bitcoin price really mean?
Speaking about the value on a particular exchange, usually, imply the price of the last transaction made on this exchange. For example, the fact that Bitcoin at Bitstamp costs $ 10,000 means that the last transaction made on this exchange was held at this price. When a new deal takes place, the price will change accordingly.
Pricing
The process of determining the price is that buyers and sellers are found on a cryptocurrency exchange (or another platform) and, by experience, find the value that suits both parties. Buyers want to buy bitcoins as cheap as possible, sellers tend to sell them as expensive as possible. To make a deal, both parties must come to a compromise. As mentioned earlier, the current value of Bitcoin on any exchange is the latest price that sellers and buyers agreed to. Let’s take a closer look at how the parties come to a compromise on the cryptocurrency exchange.
In order to answer this question, you need to understand what bitcoin is and understand the bitcoin mining process. Let’s start with the first question: What is bitcoin? Bitcoin is the value of any unique information. In fact, you can call this value even bitcoin, even blablabla, the meaning does not change. What is unique information? This is information on the network that is not yet freely available and therefore has some value. What is mining? Mining is the process of extracting blocks of unique information, the cost of which is expressed in bitcoins, programmatically. There is a written content about the mining of various articles and reviews, both for “dummies” and for people who are technically savvy, therefore, we will not dwell on this article. So what does the cost of bitcoins (bitcoin)? To be more precise, the question from the mouth of people with an economic education or associated with the exchanges (currency, stock – no difference), what provided Bitcoin? The answer to this question first plunges into a stupor. Nothing. That is, it is not provided with gold, as it was almost until the end of the last century with ordinary national currencies, it does not depend on the GDP of a particular country, it is not regulated by any particular state within its own monetary policy, Bitcoin cannot be printed on paper and declared the cost of this paper.
Makers and Takers
Changing Bitcoin quotes is usually attributed to the presence of a larger number of buyers or sellers on the market. However, this is completely wrong. In each transaction, there are two sides, so the number of buyers and sellers, taking into account volumes, is always the same. In fact, high activity of one of the parties, ready to pay the spread, leads to a change in quotations. Spread is the difference between the highest bidder’s price and the lowest seller’s price. Suppose an investor is willing to pay $ 9,350 for bitcoin, and the seller wants to get at least $ 9,400 for it. In this case, the spread is $ 50 (9400−9350).
How do takers affect prices
Suppose that buyers are convinced that in a few days the cost of Bitcoin will grow to $ 10,000. In this case, they act as takers and are willing to pay the spread, buying up the entire volume of cryptocurrency offered at $ 9,400. If Bitcoin goes up to $ 10,000, they will get a $ 600 profit. When buyers swallow up all the coins offered for $ 9400, they will go to the level of $ 9450, then to $ 9500, and so on. If buyers show excessive activity, sellers will soon understand this and begin to raise the bid price. The process will continue until the pressure of customers is exhausted and then change direction. Over time, such impulses lead to a rise or fall in quotes.
What is crypto trading?
Crypto trading is a classic form of cryptocurrency trading, which involves opening speculative positions to buy or sell a token of one or another digital cash. When investing through the stock exchange, you can earn solely on the growth of cryptocurrency, trading through a broker can increase your financial investments through both buying and selling.
Trading in cryptocurrencies is a good opportunity to earn on the change in the value of the asset. The volatility of virtual coins remains quite high, the rate fluctuations per day can be several%, which means that you can get a good profit due to this. Cryptocurrency can be traded both on the stock exchange and on Forex brokers sites.
Advantages of crypto trading
At present, everyone can carry out trading operations in cryptocurrency. Despite the increased risks of investing in cryptocurrency, more and more people are ready to overcome their fears, because “on the other side” there are incredible prospects for profit. However, you should not hope for a quick income, because to successfully earn on trading, you need to have a sufficient amount of knowledge.
Despite the active development of altcoins and their numerous appearance, an investment portfolio of cryptocurrencies should be formed around Bitcoin. That it is the basis of the new financial industry. For eight years, Bitcoin has been showing steady growth, which makes it a reliable tool, characterized by long-term progressive growth. Every day the volume of trade in Bitcoin is growing, which directly affects its liquidity, increasing it. However, do not forget about other cryptocurrencies. It is necessary to monitor how their course changes. This will allow time to invest money in “hot” coins, selling them later at a more favorable rate, when the potential of their growth will be exhausted.
How to start trading
The creation of wallets and registration on the sites and the most interesting begins the choice of investment strategy. You invest your money, and the profit depends on how accurately you estimated the situation in the financial market. Reliable start – the use of proven sites. What are the ways to trade are considered modern classics?
– Acquisition of portfolios of large funds, for example, the GBTS investment fund, a sure start. However, cryptocurrency is sold by a mixed set, and the GBTS exchange imposes a decent commission on all operations.
– Exchange of cryptocurrency directly between wallets. You find a trader and buy/sell him a cryptocurrency without intermediaries. No commission, but no guarantees.
– Hybrid trading (exchange-broker-wallet) through the exchange-platform. Choose the right space for the realization of your ideas (we stopped at the cryptolocator.com marketplace and Coinbase exchange) and embody them.
Summary
These are the most famous and popular ways to make cryptocurrencies, but here everything is limited by your creative abilities. But one way or another, you should carefully study the material on the topic and do not expect easy and quick money, because this can lead to strong disappointment in the first stages. To begin with, it is important to decide who you will be – an investor, a miner, a trader, and only after that take the first steps.
What’s all that SEC decision everyone’s discussing?
The world of cryptocurrency exploded with relief – US regulators made a decision on the ICO (initial placement of tokens), stating that companies should receive through the sale of electronic assets that must comply with federal securities laws. For this year it was decided by the prices. Nevertheless, analysts, issuers and lawyers have already stated that its consequences will be positive.
The US Securities Commission (SEC) has published a report of an investigation into the DAO. During the “placement” period from May 28 to August 2016, about 700 people from the United States bought DAO tokens. The investigation was to answer the question of whether the US securities regulation was violated during the DAO project implementation by the German company Slock.it, the persons involved and intermediaries.
Why did it happen in the first place?
Recall that in October 2016, CEO of the Digital Currency Group (DCG) Barry Silbert warned in his forecast for 2017 that the next big step for the SEC could be a close examination of the activities of the organizers of cryptocurrency tokens (ICO). As Silbert noted at the time, it is possible that such crowd sales will be classified as securities trading and, accordingly, will have to be regulated.
It should be noted that the regulation by the SEC concerns only those tokens that, when issued, were positioned as stocks and correspond to Howie’s test. That is, these measures will not affect classical cryptocurrency tokens (coins), including Bitcoin, broadcast, etc. Thus, the SEC poses a serious barrier for American companies and private investors in the organization and participation in the ICO, if the project creators do not register it with the SEC.
Did the market and neighborhood respond to the news somehow?
Probably, we will see a more restrained spread of ICO in the United States, since adherence to the SEC rules in some cases requires the disclosure of a large amount of information from both the fundraising company and the participants in the offering.
This does not necessarily mean a decrease in the number of cryptocurrencies since the number of ICOs outside the United States can only increase. Klukhenek notes that American companies with a blockchain business may switch to more traditional financing mechanisms – attracting venture capital or private capital.
What does SEC’s choice indicate?
It depends on the circumstances of each transaction. However, it is clear that the “virtual” nature of the organization that sells securities based on the blockchain for other types of digital currencies does not exempt it from the regulation of American securities laws. Steve Obi, a partner at law firm Jones Day, says that you can determine if tokens are securities using the Howie test. This is a legal criterion that is used in American judicial practice to determine whether a particular instrument or a commercial transaction is an investment contract and, accordingly, security. The test includes four signs: investment; common enterprise; waiting for profit; third-party efforts.
Regarding the organization of The DAO, which was the subject of an investigation, the SEC decided not to view the situation as a crowdfunding contract, because, among other things, the project was not a broker or a fundraising portal registered with the SEC and the Financial Institutions Agency (FINRA).
What Is A DAO?
DAO – a decentralized autonomous organization is a type of future organizations for ideal workers who are fed up with unproductive meetings, trips to work only to see someone in person, or the execution of boss orders, whose expertise is not particularly believed. We are now in the early stages of launching these futuristic companies. And the first attempts come up against certain problems, which is quite expected. But the most important thing in the DAO concept is precisely its decentralized essence. There is no boss or executive director at DAO, a blockchain-based organization. And there is a customizable set of working relationships that are constantly self-organizing to achieve certain results and implement certain projects.
In the future, it will be easier to get coins than now. Today, the most common way is to buy bitcoins for dollars, euros, yen and other currencies, and then to buy bitcoins for tokens or coins of the DAO whose member you want to become. Also, to enter the DAO, now you can buy another cryptocurrency, the ether (based on the blockchain Ethereum). For many, the Coinbase cryptocurrency platform is the initial gateway for the transition from the fiat world to the cryptocurrency one. Next, users go to such exchanges as EXMO, Bitfinex or Kraken.
What is the difference of DAO?
The DAO is a brand new type of organization that is best described by comparison with a digital company that is not tied to any legal entity. It should be noted absolute impartiality in the selection of participants. Using the implementation of smart contracts from Ethereum, The DAO allows anyone from all over the world to participate in the management of the general fund of funds.
Principles of work in the DAO
And there is another potentially huge advantage to this structure. Because DAO is organized around smart contracts and values, not people and roles, flexibility and agility for innovation increase significantly. To begin with, any owner of a DAO token can make an offer, where he will indicate the amount of ETH that will be required to develop a product or service. The proposal also defines the level of control over the powers with which The DAO should vest potential contractors.
After making a proposal, the owners of DAO-tokens participate in the voting. Each of them has absolute power over their own funds invested in the project. They can also vote for changing the service provider or changing any other offer parameter. Moreover, even if the owner of DAO tokens subsequently decides to leave the project, he or she will still have the right to make a profit from the sale of a product or service.
The logo of Bitcoin (virtual currency) is pictured on a door in an illustration picture taken at La Maison du Bitcoin in Paris July 11, 2014. REUTERS/Benoit Tessier
Criticism
Another point is related to the platform on which The DAO operates. The “wise crowd” of people supporting The DAO may be so absorbed in the hype around ETH that, in choosing projects for support, it will start to give preference to Ethereum and related ideas, the usefulness of which, according to experts, has not yet been proven.