Cryptocurrency prices fell again over the weekend after showing signs of recovery. The value of cryptocurrency is determined by supply and demand, just like anything else people want. If demand increases faster than supply, the price rises. For example, if there is a drought, the price of grain and agricultural products increases if demand does not change.
The same principle of supply and demand applies to cryptocurrencies. Cryptocurrency gains value when demand exceeds supply. There are currently only 18 to 19 million bitcoins in circulation, and minting will stop at 21 million.
Bitcoinsupporters see it as a diversifier in balanced portfolios, but it did no better than stocks at the start of the coronavirus pandemic.
Industry professionals have recently alluded to what cryptocurrency experts perceive as “aggressive federal regulation that is one of the main drivers of Bitcoin's lagging price. In a proof-of-work system, such as those used by Bitcoin and Ethereum, the more competition there is to mine a given cryptocurrency, the more difficult it will be to mine it. Cryptocurrency is volatile, with a history of “boom-and-fall” cycles that leaves many wondering if a bitcoin crash is inevitable. As with any investment, financial planners and other experts advise against letting Bitcoin price fluctuations lead you to emotional decision-making.
We only have about 10 years of data to inform cryptocurrency price predictions, and Bitcoin's value, while potentially rising in the long term, is very volatile day by day. Unlike traditional investments, such as company stocks, where price movements can be influenced by the performance of the company or industry in which it operates, bitcoin has no underlying assets. If it were an inflationary shock, as occurred in 1974, most bitcoin investors believe it would provide protection.
the price of bitcoinand other notable digital assets fell sharply in early December.
TerraUSD (UST), one of the largest stablecoins, was likely involved in Bitcoin's crash last week, according to some experts. One of the main factors driving bitcoin's price increase is the rate at which new consumers buy and explore cryptocurrencies, Waltman says. Meanwhile, crypto whales like Do Kwon, the co-founder of blockchain firm Terra Labs, are buying bitcoin worth millions of dollars in the belief that it could become a future reserve currency. In particular, bitcoin continues to be strongly correlated with the stock market, in particular the Nasdaq index.
But even with the recent price drop, Bitcoin is still more than twice as valuable as it was just a couple of years ago. That can make it difficult for the average consumer to discern if Bitcoin and other cryptocurrencies are legitimate.