The internet has completely revolutionized our lifestyle. It has become indispensable to everyday living, helping us commute, communicate and even conduct business. Most brands and companies have made the virtual shift to expand their customer base and get global exposure.
However, the wonders of the World Wide Web don’t stop there. The most recent phenomenon online that has taken the world by storm is cryptocurrency. Yes, we are living in an age where digital currency exists!
In this blog, I will try to explain the case study, I will try to explain some underlying trends of cryptocurrency and its effect on the economy.
All About Cryptocurrency
Cryptocurrency or e-money is a digital asset. Usually, these currencies are stored in a ledger and transferred through decentralized tech called blockchain. Cryptocurrency transactions are similar to the stock market. The only difference is that here, people invest, sell, and bid their digital coins online.
Most B-schools and financial institutes cover cryptocurrency in their curriculum. Here, students learn about the factors that determine the rise and fall of cryptocurrency values. Cryptocurrency combines data science with financial investment theories.
Digital currency, unlike money, is not controlled by the government or any single body. The value rates depend on several external and internal factors. Check out these features and determinants of cryptocurrency
- Decentralized architecture- Lack of govt. control
- Blockchain technology– to keep track of the cryptocurrency transactions/values
- Timestamping- to monitor when and how the cryptocurrency changes hands
- Data mining- or crypto-mining to determine the market trends
- GPU price rise- to track the boom/bust phases in the cryptocurrency values
- Cryptocurrency wallets- to store the cryptocurrency and keep it safe
- Anonymity and protection- the identity of the owner is never revealed. Also, cryptocurrency holds no value
What Determines Cryptocurrency Value?
Here are some factors that define the cryptocurrency value. A rise or fall in either of these factors can trigger massive changes in the digital currency market.
Supply And Demand
The supply and demand for cryptocurrency is basically the crux of the entire transaction. In fact, supply and demand are the two pillars of any market, real or virtual. These two factors are mutually dependent on each other.
Digital currency is extremely volatile. The exchange rates are constantly fluctuating, making it a suitable trading entity for investors. A rise in supply, automatically leads to an increase in demand and high demand means increased cryptocurrency production.
It might come as a surprise to many, but cryptocurrency is not legal in every country around the world. This is because it is challenging to keep track of the digital coin when it exchanges ownership. Users often get away with crimes like money laundering and tax evasions, leading to substantial revenue losses.
Therefore, you must understand the state laws around cryptocurrency before investing in it. In India, for instance, cryptocurrencies are not a legal tender, and there are strict regulations around transactions of digital coins.
Online threats like crypto-mining, hacking, virus infestations are serious threats to look out for. Cryptocurrency entities now collaborate with major financial institutions and payment portals. This ensures that your transactions are encrypted.
However, listing or delisting of major cryptocurrencies like Bitcoin and Ripple can cause a stir in the market. Adding a cryptocurrency to the exchange leads list improves its visibility and liquidation chances.
What Is Boom And Bust In Cryptocurrency?
Boom and bust in cryptocurrency are the same as the bull/bear phenomenon in stock exchange markets. Boom refers to a period where the demand for a specific digital currency increases exponentially. This can be because of fall exchange rates, new technology, sudden media attention etc.
Cryptocurrency bust is when the demand falls, leading to a sudden decline in the value of the currency. Bitcoin was among the first cryptocurrencies to have boomed back in 2017. This led to massive demand and hence a considerable jump in the exchange value.
Boom/rise In Cryptocurrency Values
Boom, in terms of cryptocurrency, refers to a phase when the value of the digital coin drops. This causes a chain reaction to trigger wherein investors try to buy the currency in bulk. An increase in demand then increases the exchange rate.
It is advisable to invest in cryptocurrency during the boom period and then sell it when it’s busting. Investors can make a ton of money just by reading the market right.
What Causes The Crypto Boom?
In 2017, there was a sudden crypto boom that led to a massive increase in Bitcoin investments. A study reveals how Bitcoin, had an exponential rise of 2000% becoming one of the fastest-growing assets for global investors
However, this boom came at a cost as unregistered users could access Bitcoin, leading to a considerable loss of public credibility. The hysteria around Bitcoin also triggered stricter guidelines by the state. Today, investors have to pay additional charges on their cryptocurrency investment.
Which Cryptocurrency Will Explode In 2020?
In my opinion, Ripple is one of the best cryptocurrencies to invest in 2020. This cryptocurrency has a consistent growth rate. Ripple is a company that provides blockchain technologies. Blockchains, as discussed earlier, help keep a ledger account for the crypto-coins. Ripple, in 2020, is a growing company that has gained substantial control over the cryptocurrency market.
What Is The Best Cryptocurrency To Invest In?
There are several options that you can check out when looking for profitable cryptocurrency investments. Digital coins like Ethereum, Bitcoin, Ripple, Litecoin, Zcash are some of the choices you can explore
Before investing in any cryptocurrency though, ensure that you read up the state laws and tax regulation regarding these transactions. Also, compare the prices online, do some research about the company’s potential etc. as well.
Can Cryptocurrency Values Go Negative?
No, the value of any cryptocurrency can fall up to zero. Like any other asset, even cryptocurrencies like Bitcoin might devalue or lose shares over time. It would directly affect your profit margin.
However, it can never go below that. This means that you cannot lose more money than your original investment.
What Leads To The Crypto Bust?
There are some reasons behind the crypto bust. In some cases, the digital currency might lose value organically, i.e. when the demand exceeds supply. This is a gradual and inevitable process. Both the boom and bust phenomenon are cyclic in nature.
Another reason for the crypto bust is a loss of credibility. Most investors might sell their digital coins if delisted from the exchange rating list.
The Economic Impact Of Cryptocurrency
Cryptocurrency, like every other investment model, comes with its fair share of pros and cons. Investors get better returns, the market is free and flexible, and the sky’s the limit. On the downside, this has led to an increase in cybercrime, black money, tax evasions and other legal issues.
The need of the hour, therefore, is to build a transparent financial environment where there is a standardized system to track cryptocurrency. Some countries resort to stricter tax laws to keep a record of Bitcoin transactions.
Cryptocurrency, when used right, can be a great revenue source for the country. It can also enhance international trade, unifying businesses under a single currency system. Cryptocurrency also adds on to the buying power of the investors, thereby affecting the service sector.
The Future Of Cryptocurrency
Cryptocurrency is a growing sector which will soon change the way we transact online. I see great potential in this investment provided you understand the technicalities of the market and invest prudently.