Several factors, such as rising inflation, geopolitical crises and changes in the US. UU. Monetary policy continues to drive additional short-term volatility in cryptocurrency and stock markets. One of the main factors driving Bitcoin's price increase is the rate at which new consumers buy and explore cryptocurrencies, says Waltman.
In recent weeks, the price of Bitcoin has seemed to continue to rise. But what is driving this growth? It turns out that there are a wide variety of factors that continue to cause Bitcoin to rise in value. Another Reason for Bitcoin's Rise Is Rising U.S. While inflation averages 2% each year, recent stimulus spending is on the verge of sharply increasing the level of inflation and decreasing the purchasing power of the dollar.
To hedge against this increase in inflation, many have withdrawn from the dollar and have taken refuge in assets that have historically maintained their value or even appreciated. Usually, the assets that people convert their dollars into to avoid inflation or volatile markets are those that are scarce or least volatile overall. These “safe haven” assets include things like precious metals, stocks in sectors that are generally less volatile and, more recently, Bitcoin. Another reason for Bitcoin's price appreciation is its growing adoption as a payment method.
Recently, PayPal (PYPL) announced that it would soon allow its users and merchants to buy, sell, hold and accept Bitcoin and other cryptocurrencies as a form of payment. This news drove up the price of Bitcoin immediately. PayPal has almost 350 million users who will now have the ability to easily buy, store and use Bitcoin. PayPal also has more than 20 million active merchants who can now accept the currency.
Aside from PayPal, this has more implications. PayPal also owns the popular payment app Venmo. Venmo has more than 40 million active accounts, making accessibility to Bitcoin and other cryptocurrencies even more meaningful. While PayPal and Venmo are newer in crypto, there are many other apps that allow their users to buy, sell and hold.
PayPal and Venmo's popular competitors Square (SQ) and CashApp also accept cryptocurrencies, making Bitcoin's audience even wider. As discussed above, there is a growing narrative of Bitcoin as a secure asset. In the current social and economic climate, there is a growing incentive to have less cash and protect against intense market swings. Since then, several companies have followed suit.
The trust that these companies and their investors have in Bitcoin has increasingly given merit to the concept of Bitcoin as a store of value and safe haven asset. Perhaps the most important reasons for the rise in the price of Bitcoin are two attributes that are inherent in its design. The second is a Bitcoin-coded process called halving. Essentially, Bitcoin has its own built-in escrow mechanism in which Bitcoin is released and given to miners as a reward for processing transactions.
This reward is halved every four years. By doing so, Bitcoin's inflation rate is halved on each halving and its stock-to-flow ratio doubles on each halving. This process continues every four years until all Bitcoins in this escrow mechanism are released and in circulation. From that moment on, the Bitcoin in circulation will have a limit of 21 million.
At the time of writing, there are 18,534,818 in circulation. The barrier to entry is relatively low for new competitors, but the creation of a viable cryptocurrency also depends on the creation of a network of users of that cryptocurrency. In addition, if a cryptocurrency is poorly traded on a small exchange, the spread that the exchange takes may be too large for some investors. Securities and Exchange Commission (SEC) says cryptocurrencies are securities such as stocks and bonds, while Commodity Futures Trading Commission (CFTC) says they are commodities such as coffee or gold.
By understanding the basic principle of supply and demand behind what gives value to cryptocurrency and the factors that influence them, you can make better cryptocurrency investment decisions. If a governing body changes the rules to disfavor the investment or use of cryptocurrencies, it could cause the price of cryptocurrencies to drop. Typically, cryptocurrencies are not backed by any central authority in the same way as fiat currencies or other government-sanctioned medium of exchange. In exchange, the protocol produces a reward in the form of cryptocurrency tokens, in addition to any fees paid by the exchange parties to miners.