In my last post, I have discussed briefly how Scarcity in the market aka Supply & Demand determines the price of cryptocurrency in the market. If you’ve read that, you already know how experts point to this trait in the market as a ‘scam’ and discourage investors to heavily invest in the crypto market.
Joakant on Pixabay
Joakant on PixabayHowever, contradiction exists and many are in support of investing in crypto without hesitation but considering the volatile nature of the industry.
Personally, I’m in support of investing in crypto but in a strategic way; that is, without investing all of your assets in a particular coin/token, it’s wise to have a handful of resources in your wallet so you can cover any unfortunate loss by profiting in others.
And it’s obvious that all of your crypto assets cannot go down at the same time unless Fortuna— the goddess of fortune and the personification of luck in Roman religion looks down on you.
Okay, let’s see the second reason why cryptocurrency prices fluctuate too often. This one is a strong one and in the past, crypto holders have benefitted largely overnight.
Public Interest and Mainstream Adoption
Things go crazy when big fish like the government show interest in cryptocurrency. It’s all about money, right? And the government, they have plenty of it— so, a little upsy in price won’t hurt— that’s how sellers think when any government declares or even shows a little interest in adopting crypto.
Not only the government, the price hikes with more people showing interests and exploring it. The bounty of the crypto world was away from public interests until Covid-19 hit us, making us more aware of virtual and passive income.
So, more people started exploring cryptocurrency and what do we see now? It's a massive increase both in price and users where some coins have surpassed expectations while some are going up, gradually but surely.
For example, the Bitcoin price was around US$1 in 2011 that increased to 9K in mid 2020 and the trend was going up making it around 29K in January 2021. See the differences? It’s huge. And this was all for the rapidly growing public interest that eventually led the price to go up further making it all time high 68K!
However, the price is above 40K now and changing its position every now and then. The sudden surge was caused by two major reasons— millions of jobless people moved to this sector to make some quick cash and the latter one is known to us all— Elon Musk’s interest in DogeCoin.
Again, the recent regulation issued by the US govt. has created another hype in the crypto world where experts are considering this as a step forward to adopting crypto by the government or at least, harvesting the bounty indirectly from the crypto holders in the country.
As hinted in the executive order signed by Biden, the US government clearly wants its share from this bountiful industry.
The rise in digital assets creates an opportunity to reinforce American leadership in the global financial system and at the technological frontier, but also has substantial implications for consumer protection, financial stability, national security, and climate risk. The United States must maintain technological leadership in this rapidly growing space, supporting innovation while mitigating the risks for consumers, businesses, the broader financial system, and the climate. And, it must play a leading role in international engagement and global governance of digital assets consistent with democratic values and U.S. global competitiveness. ref
And with this order signed, Bitcoin price went 8% up— as expected!
Besides, the adoption of crypto by El Salvador as well as Ukraine’s crowdfunding through crypto wallet has influenced the price hikes in crypto, no doubt. While some countries like Venezuela, Kenya, Vietnam, and Nigeria encourage the use of crypto, many are yet to accept it. When countries like Russia, China, and other powerful countries will review their decision of accepting crypto— we can expect the price to go even further. So, I think it’s high time we invest in it— but, we should bear the volatility nature of cryptocurrency in mind.
[this is the 2nd part of an ongoing series that will discuss the factors that affect crypto price. so, stay tuned]
Read the previous one here
[All content is mine unless otherwise stated]