What are the reasons why cryptocurrency prices are going up? With the prices of cryptocurrencies going up, over and above Bitcoin, this could be the future of transactions.
Regular investors like this form of digital asset for its natural price volatility. If done properly, returns on such investments can reach commanding heights and, one day, may even upend gold.
Experts say it is all due to the fact that cryptocurrencies are highly dependable on data, which makes it quite easy to speculate and makes it much less susceptible.
There are several other good reasons for the price of crypto rising constantly making it a reliable, productive, and a safe-haven asset.
7 Reasons Why Cryptocurrency Prices are Going Up?
There are several economic, non-economic, and even technical reasons for cryptocurrencies becoming dearer.
1. Big companies buying it in bulk
It is the institutional adoption of cryptocurrencies that has primarily forced the prices of it to go up.
It is its volatility, reliability, and productivity that have encouraged giants like MasterCard, Tesla, and BNY Mellon to purchase and take new initiatives to accept cryptocurrencies as a mode of payment.
The 18th century company, BNY Mellon, is the most recent big name to adapt to the cryptocurrency world and they treat this just like any other security to provide financial services.
All these give the customers more choice to make payments when they buy any good or service.
2. Speculative buying
The rise in price of the crypto is also driven by speculative buying, the large part of it. This speculation actually undermines the interests of using cryptocurrency as a medium of exchange.
The prices can fluctuate, both rise and fall, by as much as 14% on any given day, a feat which is unachievable by the traditional dollar bills.
3. Inflation hedge
Most institutions that invest in cryptocurrencies consider it to be an inflation hedge and buy more of it.
Even one of the richest hedge fund investors, Paul Tudor Jones, agreed that investing in cryptocurrencies reduced concern about inflation and even the Federal Reserve.
Since the supply of cryptocurrencies is inadequate, this pushes the price of it even higher.
4. The lockdown effect
As the pandemic due to Covid-19 spread to Europe first and then in the US, governments started imposing lockdowns in order to prevent the virus from spreading.
Such lockdowns affected economic growth which caused worries about a global recession.
Though the central banks stepped in to revive national economies, it was a tough task. Interest rates were cut down and more dollars were printed to bolster the economy, and it caused inflation, though weak.
This caused concerns among people who started buying more cryptocurrencies in fear of the rising inflation, making it even scarcer and pushing up the price of it further.
5. PayPal initiatives
Online payment giants such as PayPal also played a significant role in raising the price of cryptocurrencies. They made it even easier for the people to own and spend it.
They took special initiatives to manage this fund and other similar vehicles. This resulted in a growing trend of institutional and dictatorial acceptance of cryptocurrencies, making it costlier.
6. Halving driven security
Halving driven security of the cryptocurrencies is one of the most vital factors that add to its rising price. With a limited supply of cryptocurrencies, this event that happens usually every four years, affected the price significantly.
New coins are introduced in the market by the miners when they verify blocks during making transactions.
This is then added to the crypto network and the miner is rewarded by a specific amount of currency.
This amount is 6.25 BTC per valid block mined. But it is reduced by half after mining 210000 blocks or after every 4 years.
This halving process doubles the stock to flow ratio which is the ratio of total currency in circulation to the numbers of coins available.
This makes the currency scarce. People, coming to know about this scarcity, demand more of it thereby pushing the prices higher.
7. Easy accessibility
Lifting the ban against cryptocurrencies in several nations has made this easily accessible to the public. There are different websites and online exchanges that allow trading cryptocurrencies, Binance, for example.
It is a new asset class that people are willing to hold and use as a mode of payment while making transactions even more than before. They are even willing to pay more for it, a significant reason for its price rise.
Can Cryptocurrency Replace National Currency?
Cryptocurrencies have brought in the digital revolution and its market is booming as of now. However, in spite of its strong potential it will take a much longer time to replace the national currency completely.
Moreover, not all counties of a nation accept this as a legal mode of payment and therefore cannot replace national currency that easily and quickly.
However, this does not mean there is no chance of it in the future to become the mainstream.
In fact, specific banks such as the Sweden Bank or Risbank, are currently contemplating on ways to create their own ‘Central Bank Digital Currencies’ and see how it impacts the national economy.
The main reason behind putting such effort is that cryptocurrencies can help reduce inflation issues. It is due to its low risk of unavailability in comparison to fiat money.
Moreover, countries like Turkey, where exchange rates are highly variable, investing in cryptocurrencies may prove to be a more viable option.
The rise of e-commerce is also another good reason to invest in cryptocurrencies and to make purchases on the internet by making faster, safer, and more effective payments.
Countries like Latin America, where it is hard for people to own a bank account, cryptocurrencies can be a proven solution to exchange money and goods and services.
However, it still needs some more improvements in the areas of security, stability, and protocols. This is quite difficult because there is no central agency governing cryptocurrencies.
Then there are issues like political insecurity especially in developing countries, unstable monetary policies, tax system and legislation that will not allow cryptocurrency to replace national currency easily.
Therefore, it is still too uncertain to say cryptocurrency will replace national currencies, if at all. In fact, experts say that if e-money changes the key paradigms of the monetary system of today, it can actually make things even worse.
Though it is convenient and here to stay, it cannot quickly replace national currencies and economies.
Where Would Cryptocurrency be in 10 Years From Now?
Now, the million dollar question is: what about the future of cryptocurrency? Well, it needs careful evaluation of the decade past and ahead.
There is no doubt that the decade ahead will prove the need and significance of the evolution of cryptocurrency in its different forms. For this, there are different areas that need paying a close attention to such as:
- Its store value as a medium for day-to-day transactions
- Keenness of the institutional investors
- Profitability from the volatile prices and
- Acceptance of it by the governments around the world.
In addition to that, nothing can seriously happen without any technological improvements made in its ecosystem. It should be able to handle millions of transactions in the shortest possible time.
There are several new technologies implemented as of now on an experimental basis, such as Lightning Network, to expedite the scale and speed in its operation.
Extensive media coverage of the evolution and regulation of this ecosystem will also play an important role in its success in the next decade. It will successfully and efficiently transform the value exchange with its low cost.
As of now, cryptocurrencies, in all its form, have made trading a success with the price of Bitcoin especially trading as close to $60,000 as of March 2021.
In spite of the pandemic caused by the coronavirus, larger banks have started accepting crypto trading by opening custody services for this digital currency.
If everything goes well, then in the next decade you can expect it to be accepted in different sectors of the economy including the automobile manufacturers to the gas stations by the highways. It will be the chosen currency for international trade.
With the banks, financial institutions and people showing huge interest in cryptocurrency investments, it is surely on the verge of mainstream acceptance.
Experts say that in the next ten years, Bitcoin especially will be priced as high as $500,000. However, they warn the investors to keep a watchful eye on its developments and not to take any prediction as a fact.
Therefore, there is a lot to look forward to in the 2020s in terms of the evolution and future of cryptocurrencies, though its progression is pretty slow.
The prices of cryptocurrencies are on a constant rise and this, the experts say, is just the beginning. With more nations accepting it and even in the search of regulating the market, prices of it will rise further and become conventional.