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Their involvement has played the biggest part in the token's meteoric rise through the end of , according to Douglas Borthwick, chief marketing officer at digital-asset trading platform INX. Increased adoption from payment applications like PayPal will give far more people easy access to cryptocurrency. As Bitcoin matures, engineers have designed additional protocols to improve the speed and privacy of Bitcoin transactions, including the Omni Layer , Lightning Network and Liquid Network. From that point on Bitcoin in circulation will be capped at 21 million. Additional Information. Log in.
Tim Draper, pictured here on 5 August, , in California, has been a prominent bitcoin advocate since the early days of cryptocurrency. Please enter your email address Please enter a valid email address Please enter a valid email address. I would like to be emailed about offers, events and updates from The Independent.
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However, when the first exchanges began to appear, a price developed. Bitcoin's price at first was small—just a few cents, and it wasn't even being tracked like stocks are in the market. As an example, you could look up the price of Bitcoin on the internet, and you might find two different prices. If you used Coindesk.
Part of the reason for all the different values is where the data comes from. Bitcoin is never traded in one place. Instead, it is traded on multiple exchanges, all of which set their own average prices, based on the trades being made by the exchanges at a given time. Indexes gather together prices from several exchanges and average them out, but not all of the indexes use the same exchanges for their data.
If you want to buy and sell Bitcoin, you have to choose a particular exchange, which will have its average price.
The price of Bitcoin fluctuates at any given moment, depending on which exchange the information comes from. The price of Bitcoin is very volatile, partly due to the liquidity the ability to quickly buy and sell of the currency. The amount of bitcoins flowing through the market at any point in time gives investors the ability to enter and exit positions quickly. If people are trading a high number of a particular asset, it becomes harder for one person or event to shift that price in any single direction.
Think of it as a stream of water—you can redirect a small stream by putting down a few planks of wood. With fiat currencies like the U. With Bitcoin, trading volumes are small in relation to the rest of the assets being traded daily—which means that single events can make a bigger difference. The Bitcoin market is influenced by many events. Since the gold standard was removed in by Richard Nixon the amount of circulating dollars has steadily increased.
While there are certainly people suffering from a lack of jobs and businesses shutting down, the increase in money supply has significant long-term implications for the purchasing power of the dollar. The stimulus spending has led many to fear far greater inflation rates, and rightfully so. To hedge against this inflation investors have sought assets that either maintain value or appreciate in value.
Over the course of , this search for a store-of-value asset to hedge against inflation has brought them to Bitcoin. There are many assets that are considered a store-of-value.
Perhaps the most common assets that come to mind are precious metals like gold or other things that have a limited supply. With gold, we know that it is a scarce resource, but we cannot verify with complete certainty how much exists. And, while it may seem far fetched, gold exists outside of earth and may one day be obtainable via asteroid mining as technology advances. This is where Bitcoin differentiates itself. We can verify with certainty how many exist now and how many will exist in the future.
This makes Bitcoin the only asset on the planet that we can prove has a finite and fixed supply. And I think a lot of them are actually thinking about the juxtaposition between digital currencies, like Bitcoin, which have verifiable scarcity and thinking about that in the context of Fiat currencies, like the US dollar which seemingly are being printed unlimitedly.
With further money printing on the horizon from stimulus packages, as well as talks of student loan forgiveness from the Biden administration, it is fair to say that inflation will continue, making the case for store-of-value assets more compelling. To further understand why Bitcoin has a verifiable finite limit to its quantity it is important to understand the mechanism built into its code known as the Halving.
Every , blocks that are mined , or about every four years, the reward given to miners for processing Bitcoin transactions is reduced in half. In other words, built into Bitcoin is a synthetic form of inflation because a reward of Bitcoin given to a miner adds new Bitcoin into circulation. The rate of this inflation is cut in half every four years and this will continue until all 21 million Bitcoin is released to the market.
Currently, there are Why is this important?
As discussed before, the rising inflation and growing quantity of the US dollar lower its value over time. With gold, there is a somewhat steady rate of new gold mined from the earth each year, which keeps its rate of inflation relatively consistent. With Bitcoin, each halving increases the assets stock-to-flow ratio. A stock-to-flow ratio means the currently available stock circulating in the market relative to the newly flowing stock being added to circulation each year.
Because we know that every four years the stock-to-flow ratio, or current circulation relative to new supply, doubles, this metric can be plotted into the future. Each halving Bitcoin has experienced a massive bull market that has absolutely crushed its previous all-time high. The second Bitcoin halving occurred in July of Should Bitcoin continue on this trajectory as it has in the past, investors are looking at significant upside in both the near and long-term future.
Some investment firms have made Bitcoin price predictions based on these fundamental analysis and scarcity models. As discussed, the narrative of Bitcoin as a store of value has increased substantially in , but not just with retail investors. A number of institutions, both public and private, have been accumulating Bitcoin instead of holding cash in their treasuries.
Investments of this magnitude suggest strong confidence among these institutional investors that the asset will be a good hedge against inflation as well as provide solid price appreciation over time.