Bitcoin is not issued by a central bank or backed by a government; therefore, the monetary policy tools, inflation rates, and economic growth measurements that typically influence the value of a currency do not apply to Bitcoin. Bitcoin acts as more of a commodity being used to store value, so the following factors influence its price:

• The supply of Bitcoin and the market’s demand for it

• The cost of producing a bitcoin through the mining process

• The number of competing cryptocurrencies

• Regulations governing its sale and use

• Media and news

Effects of Supply on Bitcoin's Price

The supply of an asset plays a vital role in determining its price. A scarce asset is more likely to have high prices, whereas one available in plenty will have low prices. Bitcoin's supply is generally well-publicized, as there will only ever be 21 million produced and only a specific amount created per year. Its protocol only allows new bitcoins to be created at a fixed rate, and that rate is designed to slow down over time.

Bitcoin's future supply is therefore dwindling, which adds to demand. This is similar to a reduction in corn supply if harvests were to be reduced every four years until no more was harvested, and it was publicly advertised that it would happen—corn prices would skyrocket.

Bitcoin's Price and Demand 

Bitcoin has attracted the attention of retail and institutional investors, increasing demand fueled by an increase in media coverage and investing "experts" and business owners touting the value Bitcoin has and will have. Bitcoin has also become popular in countries with high inflation and devalued currencies, such as Venezuela. Additionally, it is popular with those who use it to transfer large sums of money for illicit and illegal activities.

This means that shrinkage in future supply has coupled with a surge in demand to fuel a rise in bitcoin's price. However, its price still fluctuates in alternating periods of booms and busts. For example, a run-up in Bitcoin’s prices in 2017 was succeeded by a prolonged low, then two sharp increases and downticks through 2021.

Production Costs and Bitcoin Price

Like other commodities, production costs play an essential role in determining bitcoin's price. According to some research, bitcoin’s price in crypto markets is closely related to its marginal cost of production.

For Bitcoin, the production cost is roughly a sum of the direct fixed costs for infrastructure and electricity required to mine the cryptocurrency and an indirect cost related to the difficulty level of its algorithm. Bitcoin mining consists of a network of miners competing to solve for an encrypted number—the first miner to do so wins a reward of newly minted bitcoins and any transaction fees accumulated since the last block was found.

Solving the hash to open a block and earn a reward requires brute force in the form of considerable processing power. In monetary terms, the miner will have to buy many expensive mining machines. The bitcoin-mining process also requires costly electricity bills. According to estimates, electricity consumption for the bitcoin-mining network equals more than that of some small countries.

How Competition Effects Bitcoin's Price

Though Bitcoin is the most well-known cryptocurrency, hundreds of other tokens are vying for investment dollars. As of 2022, Bitcoin dominates trading in cryptocurrency markets.4 But its dominance has waned over time. In 2017, Bitcoin accounted for more than 80% of the overall market capitalization in cryptocurrency markets. By 2022, that share was down to less than 50%.

The main reason for this was increased awareness of and capabilities for alternative coins. For example, Ethereum has emerged as a formidable competitor to Bitcoin because of a boom in decentralized finance (DeFi). Investors who see its potential in reinventing the rails of modern financial infrastructure have invested in ether (ETH), the cryptocurrency used as “gas” for transactions on its network. Ethereum accounts for around 20% of the overall market cap of cryptocurrency markets.

Source - https://www.investopedia.com/tech/what-determines-value-1-bitcoin/