The world of business and finance has been profoundly altered as a result of the technological revolution. The use of cryptocurrencies is one of the most notable instances. This is one example of an immersive technology that is supported by blockchain technology, which helps to protect users’ identities while also allowing them to maintain their anonymity. It is a kind of money that is not controlled by any one institution. Bitcoin, Ethereum, Ripple, and Monero are just a few examples of the numerous cryptocurrencies that have appeared in recent years.
While there are still many individuals who have skepticism about cryptocurrencies, a growing number of individuals have begun to put their money into these digital assets. As a result of the unpredictability and decentralization of cryptocurrencies, several nations have gone so far as to prohibit their use outright. It should be noted that India, like many other countries, believes cryptocurrency to be illegal and has issued a directive to halt any transactions using it. The result of this is that there is now discord among the different financial circles.
When you consider how incredibly unstable bitcoin is, you could find yourself wondering what gives it any value at all. On any one day, the bitcoin price may see swings of up to 10% or even as little as 2% each way. This is not an unusual occurrence. Smaller coins are more susceptible to price movements that are even more extreme. The supply of bitcoin and the demand for it are the two primary factors that define its value, just as they are for the price of everything else that people desire. If there is a greater demand than there is supply, then the price will go up. For instance, if there is a drought, the price of grain and products goes up, even though there is no change in the level of demand. The same economic premise of supply and demand applies to cryptocurrency markets. When there is a greater demand than an available cryptocurrency, the price of the cryptocurrency goes up. The supply mechanism of a cryptocurrency is always public knowledge since every cryptocurrency discloses the plans for how its tokens will be created and destroyed. Some of them, like Bitcoin, have a maximum supply that is predetermined; for example, we know that there will never be more than 21 million Bitcoins. Ether, on the other hand, does not have a supply limit. Some digital currencies feature built-in mechanisms that, when activated, “burn” current tokens. This keeps the total amount of tokens in circulation from becoming too high, which helps keep inflation under control. To destroy a token, you must first transfer it to an address on the blockchain that cannot be recovered.
Demand can rise as a result of increased usefulness or as a result of increased knowledge of a project. The increased use of cryptocurrencies as investments by a larger population not only drives up demand but also has the impact of reducing the total amount that is in circulation. For instance, when institutional investors first started purchasing and holding Bitcoin at the beginning of 2021, the price of Bitcoin increased significantly as demand outpaced the pace at which new coins were created, effectively reducing the total amount of Bitcoin that was available for purchase. This caused the price of Bitcoin to rise.
Now comes the question: Should one invest in Crypto?
Because cryptocurrencies like Bitcoin have historically demonstrated little price connections with the stock market in the United States, having some cryptocurrency in your portfolio may help boost the portfolio’s diversity. If you believe that cryptocurrency usage will become more widespread over time, then it makes sense for you to buy some cryptocurrency directly as part of a diversified portfolio. However, if you do not believe that cryptocurrency usage will become more widespread over time, then it does not make sense for you to buy cryptocurrency directly. Make sure that you have a well-thought-out investment thesis prepared for every cryptocurrency in which you want to invest. This will help you determine which cryptocurrencies will most likely succeed in the long run. You should be able to manage the investment risk as part of your total portfolio if you do your homework and study as much as you can about how to invest in bitcoin if you educate yourself as much as possible on how to do so.
You may benefit from the increase of cryptocurrencies in other ways than purchasing bitcoin, which may be more appealing to you if buying cryptocurrency seems like too much of a risk. You have the option of purchasing the equities of cryptocurrency-related businesses like Coinbase, Block, and PayPal, or you can put your money into an exchange such as CME Group, which makes trading in cryptocurrency futures possible.
By Niharika Kulthia