How Many Dollars Is One Bitcoin: Best Explainer

Published: April 17, 2024 | Last Updated: April 18, 2024

Hudson Kisia

Hudson Kisia has been researching and writing content for ElementalCrypto since 2022. He has been writing about crypto, blockchains, and mining for more than 5 years now.

In this post I will explain how many dollars is one Bitcoin.

Just like any other unregulated currency, the price of bitcoin fluctuates depending on the market forces of supply and demand.

Furthermore, the price of the United States Dollar (USD) is also susceptible to the same forces of supply and demand. Thus, the current price of bitcoin is based on the latest exchange rate of the US Dollar.

There are two sides to the Bitcoin-USD currency pair – the current exchange rate of bitcoin vis-à-vis the current USD exchange rate.

The Bitcoin-USD currency pair

BTC-USD pair
BTC-USD pair

The most popular digital currency pair on crypto exchanges is the Bitcoin-USD pair. Bitcoin is not just the world’s first cryptocurrency but also the most widely traded cryptocurrency. This can be attested by the sheer volume of Bitcoin transactions in the cryptocurrency market that accumulates to its heavy market capitalization. On the other hand, the USD is the most widely traded fiat currency.

To understand Bitcoin I recommend you read What Is a Bitcoin and How Does It Work.

How the price of bitcoin is established

In the currency exchange market, every currency is a commodity – relative to the other currency. In the crypto exchange market, Bitcoin becomes a commodity that buyers and sellers are willing to exchange for a price. This price is expressed in another currency, in this case, the US dollar.

To understand how the price of bitcoin is established, we need to consider the three key elements:

  • The equilibrium point
  • The price aggregators
  • The exchange rate calculator

1. The equilibrium point

BTC-USD equilibrium point
BTC-USD equilibrium point

The price of bitcoin is established at that equilibrium point (measured in USD) at which both the buyers and sellers are willing to exchange bitcoins for US dollars. At this point, sellers are satisfied with the amount of dollars that they receive for the bitcoins that they sacrifice. On the other hand, buyers are also satisfied with the amount of bitcoins that they receive for the dollars that they sacrifice.

The sellers represent the supply side while buyers represent the demand side. At this equilibrium point, the forces of supply and demand equal each other.

At the equilibrium price, the quantity of bitcoins supplied is equivalent to the quantity of bitcoins demanded.

2. The price aggregators

Cryptocurrency price aggregator
Cryptocurrency price aggregator

In a real-world scenario, this equilibrium point is an aggregate average of the various equilibrium points in a given market within a set period. For example, the Coinbase exchange market will likely have a different equilibrium point from the Binance exchange market at a given point in time. Aggregators, such as Coindesk, will pull equilibrium points from dozens of markets to derive an aggregate average. This aggregate average will be bitcoin’s price at that particular point in time. For Coindesk, this becomes the Coindesk Bitcoin Price Index. This index is verified by Coindesk employees.

This equilibrium point is not static. It is dynamic. In large markets, this equilibrium point keeps changing every passing second. This is why live tracking of the live BTC price movement is the best way to get conversion rates at the last price update.

3. The exchange rate calculator

Bitcoin Price Calculator
Bitcoin Price Calculator

Most cryptocurrency exchange platforms have a USD calculator that enables users to quickly establish how many dollars that one bitcoin is worth.

While this USD Converter is the simplest currency conversion tool, it conceals complex dynamic computations that go on behind the scenes to establish the USD exchange rate to convert BTC. At the basic level, the exchange rate calculator pulls data from a price aggregator based on the query fed to it by the user. For example, if the query is about how many dollars is one bitcoin, the calculator will pull data from the Coindesk Bitcoin Price Index (or any other aggregator it is linked to) and display the current rate.

Factors determining the price of Bitcoin

We’ve seen that the value of bitcoin is determined by forces of supply and demand in the market. But, what influences this supply? And what influences this demand?

Let’s look at both the supply-side factors and the demand-side factors. In addition, let’s consider the external factors.

1. The supply-side factors

These are factors that determine the suppliers’ willingness to put bitcoins into the market at a specified price.

These factors include:

  • Cost of mining bitcoin – given a specific price, the lower the cost of mining bitcoins the more likely suppliers will be willing to put more bitcoins into the market. Every next bitcoin halving increases the computational power and thus the cost of mining a new block. This reduces the amount of bitcoin being released to the market.
  • Bitcoin network fees – the Bitcoin network fees fluctuate depending on many factors, including network activity on the Bitcoin blockchain. This network fee is an expense that suppliers incur thus contributing to minimum price increment.

2. The demand-side factors

These are those factors that determine the consumers’ willingness to buy bitcoins from the market at a specified price. These include the perceived value of:

  • bitcoin in the consumers’ mind
  • altcoins vis-à-vis bitcoin in the consumers’ mind
  • US dollar vis-à-vis bitcoin in the consumers’ mind

3. External factors

These are factors beyond the control of both suppliers and consumers. These factors include:

(a) External factors affecting bitcoins

The external factors are those beyond the market forces of supply and demand. These include:

  • The circulating supply of bitcoins – while suppliers influence the circulating supply of bitcoins in the market, this is limited by external factors. Among them is the number of bitcoins being mined within a particular period. Thus, no matter the demand, there is a limit to the volume of circulating supply of bitcoins.
  • Regulatory policies – government regulatory agencies can affect supply and demand. Restrictions on the use of bitcoins will have an impact on both the supply side and the demand side with varying effects.
  • Speculation – major players in the market can create speculation to sway the market price in a certain way that suits their intended goals. Negative price speculation will dampen demand while increasing supply thus lowering the price of bitcoin. On the other hand, positive price speculation will increase demand while lowering supply thus increasing the price of bitcoin.

(b) External factors affecting the dollar

While bitcoin is the gold standard of cryptocurrencies, the dollar is the gold standard of fiat currencies. Since BTC-USD is the most traded crypto-fiat trading pair, factors affecting the price of the dollar will also affect the price of bitcoin since the price of bitcoin is relative to the price of the dollar.

Such external factors include the US Federal Reserve policy, the performance of the USD in the money markets, and the global economic outlook, all of which have an impact on the USD rate today.

The bitcoin price prediction

In coming up with the anticipated price of bitcoin in the market, both traders and investors rely on price prediction to set their expectations. These expectations then influence their willingness to hold, acquire, or dispose of the bitcoins. Certainly, how they acquire and dispose of bitcoins has an impact on the bitcoin price today.

Historical trends, market sentiments, the impact of competing alternatives, and the global environment influence the price of bitcoin. Let’s briefly explore each of these:

(a) Historical trends

The BTC price prediction is influenced by the following past performance trends:

  • Long-term trends in the historical prices of bitcoin
  • Long-term trends in the historical rates of exchange of the BTC-USD pair

(b) Market sentiments

Market sentiments can cause the price of bitcoin to rapidly appreciate or depreciate. If the market sentiments rally towards bitcoin appreciating in value, the price of bitcoin will significantly rise. The opposite is also true.

Bitcoin, like most cryptocurrencies, has no intrinsic value. It only has extrinsic value whose worth is largely based on market sentiments.

(c) The impact of competing alternatives

Bitcoin has competitors – the altcoins. These altcoins include Ether, Bitcoin Cash, and Dogecoin, among others. Thus, if the altcoins are performing better, investors will tend to dispose of bitcoins for the alternatives. This will dampen the price of bitcoin.

On the other hand, if bitcoins perform better than altcoins, investors will tend to dispose of the altcoins in favor of bitcoins. This will appreciate the bitcoin’s value.

Apart from other cryptocurrencies, other competitors include major fiat currencies such as the American Dollar, British Pound Sterling, Indian Rupee, Saudi Riyal, Philippine Peso, Malaysian Ringgit, and Pakistani Rupee, among others. Also, other than digital currencies, commodity currencies add to this competition. These commodity currencies include precious metals such as gold, silver, and bronze.

For example, many investors use bitcoin and gold as a hedge against volatility in the US Dollar. If the bitcoin becomes more volatile than the US Dollar, then investors may shift to the US Dollar, and thus the price of BTC will suffer. For those investors who would rather opt for gold rather than USD, they will buy more gold instead. On the other hand, if gold becomes volatile, the investors will seek a more stable alternative to store their value, hence investing more in bitcoins, USD, and other most popular currencies.

(d) Global environment

Currencies are driven by economic factors. On the other hand, economic factors are driven by political factors. Thus, when political events adversely affect the global financial situation, investors are bound to react in ways that will safeguard their investments. Since fiat currencies are more susceptible to political events, investors will tend to seek safety in Bitcoin. This will cause the price of bitcoin to rise.

Up next

When You Buy Crypto Where Does the Money Go (For Real)

when you buy crypto where does the money go

Are you wondering where the money goes when you buy crypto?  Are you investing directly in the virtual currency or is it stored somewhere specific? Do your US dollars, pesos, euros, and nairas get stored directly on a blockchain?  In this post, I will walk you through the different scenarios of how people spend money to buy crypto and where the money goes. I will provide you with a step-by-step breakdown of what happens when a buyer initiates a crypto purchase, from the moment they click ‘buy’ to the completion of the transaction. Next, I will help you understand the role of cryptocurrency exchanges in facilitating transactions and how the exchange process works. Finally, I will also help you comprehend the role of digital wallets and private keys in securing and managing their crypto holdings. Continue reading.

Hudson Kisia has been researching and writing content for ElementalCrypto since 2022. He has been writing about crypto, blockchains, and mining for more than 5 years now.

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