Bitcoin’s Unpredictability – Will this volatility influence the other Markets?
Bitcoin, the world’s first digital currency has the potential to make payments faster and simpler. It has many benefits, for example, it reduces remittance, provides control over capital and is being more widely used and accepted in today’s time.
Bitcoin operates on a demand and supply basis and with no formal body governing this, it’s left to its own devices to do as it pleases. The price of bitcoin depends on the negotiations between the seller and the buyer after setting certain boundaries. Most people who buy bitcoin online are speculators and are ready to sell their currency at the first sign of price drop as they anticipate a greater loss in the future. Investor perceptions play a major role in vitality in this cryptocurrency.
Bitcoin, the father of cryptocurrency, plays a crucial role in deciding the market value of cryptocurrency. All other currencies are first priced on the basis of bitcoins. Through this, it is able to decide the trends in the cryptocurrency market. It plays the role of a reserve currency. It also has the highest transaction and proportion in the market. Price changes can also lead its competitors away as traders use bitcoin to buy other currencies. This has given birth to a sort of reliability on bitcoin. Hence, any rise or fall in the value of bitcoin automatically affects the value of other currencies.
Bitcoin also affects other asset classes. Chipmakers like Nvidia and AMD have been supported by demand for their products to mine bitcoin. In fact, some stocks have surged immediately after the companies revealed that they were adding the word “blockchain”.
Besides being unpredictable, it has some other drawbacks as well, for instance – it has not been formally recognized by the government which makes people wary to invest or purchase this cryptocurrency. Many other cryptocurrencies have risen up and reduced its market share to 50% from 85% in a year’s time only. Hence, bitcoin has a large scope for improvement and there’s a long way to go before it satisfies majority of the population.
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