Factors shaping Bitcoin's valuation and price formation

Abstract

Our research examines the factors shaping Bitcoin's valuation and price formation. It highlights the role of scarcity, which, combined with demand, influences prices over the long term. Models such as the Stock-to-Flow (S2F), Network Value-to-Transaction (NVT), and Metcalf's Law provide valuable insights into Bitcoin's valuation dynamics. Bitcoin's predetermined monetary policy, including halving events, contributes to its scarcity and deflationary nature, affecting miner profitability and price dynamics. Network effects, evidenced by growing user base and adoption, also drive demand and valuation. While scarcity and network effects are primary drivers, other factors like technological advancements and regulatory developments also play a role. Understanding these dynamics is crucial for assessing Bitcoin's long-term value in the digital asset landscape.