One of the most common questions we get asked about Bitcoin is "How much is it worth?" At first glance, this is a simple question, since you can find the current and past prices of Bitcoin - along with a whole host of other cryptocurrencies - at our price tracking website Coinpaprika.com. However, over the last decade, the price of Bitcoin has constantly bounced up and down (but mostly up), without finding a single value to hold onto, which begs the question: how much is Bitcoin really worth?
To answer this question properly, we first need to understand how Bitcoin derives its value. After all, why should some new internet money, not backed by any physical assets or government promises, be worth anything?
The answer lies in Bitcoin's fixed supply. Bitcoin is programmed such that there will never exist more than 21 million Bitcoin, although only 17 million of those exist today. From a simplified point of view, this rarity gives Bitcoin its value. From a holistic point of view, it's the economic principles of both supply and demand that really give Bitcoin its value...
Supply and demand is an economic model of price determination that considers just two factors: the supply of an item and the demand for that item. With Bitcoin, the fact there is some demand and a limited supply allows sellers to charge for it, thereby giving it value.
In fact, the model of supply and demand doesn't just explain why Bitcoin has value - it also helps explain what that value is. The same model says that high demand means a higher price, while low demand means a lower price (since buyers are willing to pay more or less for something depending on how much they want it); similarly, high supply means a lower price, while low supply means a higher price (since sellers are willing to charge more or less for something depending on how much they have of it).
What the supply and demand model can't do is determine exactly how much Bitcoin should be worth now, or in the future.
Bearing in mind those all-important principles of supply and demand, you might wonder whether mining - the process of minting new Bitcoin tokens - has any effect on the value or price of Bitcoin.
While mining is also a key part of how Bitcoin transactions are processed, it's the only source of newly minted Bitcoin. Right now, 12.5 Bitcoin is the reward for mining a so-called "block", which occurs roughly every 10 minutes. As a result, about 1,800 Bitcoin are created every day - in other words, the supply of Bitcoin is increasing every day.
As a result, if demand for Bitcoin were to remain stable, the slowly increasing supply would cause the price to gradually drop. This is the same mechanism that causes inflation in fiat currencies like the Dollar and Euro, which lose value every day due to the printing of new notes.
Every four years, the rate at which new Bitcoins are mined is halved; this is known as the "halvening" or "halving." As a result of the halvening, the supply of Bitcoin still continues to increase on a daily basis, but at an ever-slower rate.
While the halvening slows down the inflation of Bitcoin, it's unclear how or if at all it affects the price itself. Historically speaking, the halvenings (in 2016 and 2012) have however marked the beginning of a bullish price movement. With the next halvening set to take place in 2020, spectators are wondering whether history is going to repeat itself...
When speculating on the price of Bitcoin, investors like to ask whether has the potential to go up or down to a certain price. In a word, the answer to all of these questions is yes.
Since Bitcoin has a limited supply, all it takes a change in the demand to move the price. If demand for Bitcoin disappears, then it is definitely possible for the price of Bitcoin to go to $0. However, if demand for Bitcoin skyrockets, then it would definitely be possible for Bitcoin to rally up to 6/7 figures and beyond.
In this case, the only real guide we have to the future is the past. Since Bitcoin has traded between about $100 and $20,000 over the last five years, it's feasible that it will remain in that range - but again, demand is the only thing stopping it from going lower or higher.
To answer the question how much is Bitcoin worth? on a more mundane level, we can look at the current and historical prices that Bitcoin has been sold for.
If you go too far back, it's hard to find reliable price data for Bitcoin since there wasn't much liquidity (very low amounts were being traded) and exchanges didn't exist to collect the data. That's why the price chart on our website only goes as far back as April 2013.
There is, however, a story from 2010 that captures just how little Bitcoin was worth. On May 22, 2010, a programmer on the BitcoinTalk forum paid another user 10,000 Bitcoin to buy him two large Papa John's pizzas - which were worth about $30 at the time. This put the value of Bitcoin at less than one third of a cent. For reference, this is worth about $45 million today, or about $200 million at Bitcoin's peak price back in December 2017.
Our data from April 2013 onwards shows Bitcoin being traded for around $100 for most of that year, before spiking up to just under $1,000 in December. From there it spent a year and half slowly falling down to around $230 in June 2015, before gradually climbing back up to $1,000 in February 2017.
From then on, Bitcoin grew exponentially up to around $20,000 in December - with a few bumps along the way - before taking a painful, bumpy ride to today's (November 2018) price of $4,500.