In just one year the price of Bitcoin ticked up from around 5000$ to more than 57000$, representing an increase of over 1000%. (according to Investopedia.com) So, the hype about Bitcoin is understandable, but what made Bitcoin as worthy and popular as it is now?
The success of Bitcoin comes from its innovative idea. There are exactly 21 million Bitcoins, which can be mined. Therefore, it is really scarce, which increases its value. Also, an important element of mining Bitcoin is the halving. People can get Bitcoins, if they make their computer’s capacity accessible for the Bitcoin’s blockchain network, in order to increase their chance to get a Bitcoin. This method is called Bitcoin mining. This chance halves itself roughly in every four years, which results in a price boom of Bitcoin.
The use of Bitcoin is spreading rapidly due to several companies ready to accept bitcoin as a payment for goods and services. The most widely known Bitcoin-accepting companies are PayPal and Tesla. Tesla CEO Elon Musk is also optimistic about the future of Bitcoin, which is why he has invested a large amount of money in it, according to CNBC. This investment and his infamous tweets strongly influenced the price of Bitcoin and it became more and more appealing for other companies and investors as well.
Another interesting reason is that Bitcoin is quite resistant to inflation compared to the US Dollar. This trait made Bitcoin more attractive, especially at a time when the Government of the USA has launched large stimulus packages for the purpose of tackling the financial crisis caused by the pandemic. Besides the yearly 2% inflation, these stimulus packages decrease the dollars purchasing power and also cause inflation. Therefore, a lot of investors purchased Bitcoin in order to avoid depreciation of their dollars.
Overall, Bitcoin looks like a risky investment because of its high volatility. However, many experts suppose that cryptocurrencies are the future because they are easy to handle. That is true, but we have to keep in mind the negative impact of Bitcoin mining on the environment. So, Bitcoin will still remain a controversial topic, but cryptocurrencies should be in our mind, when we speak about the future of financial markets.
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