We have seen insane growth in the cryptocurrency market recently especially with bitcoin. As of writing this post, one unit of bitcoin is valued at a whopping $8000. It sounds just out of this world when you imagine the net worth of the people who trusted bitcoin from the start.
So what is contributing to this massive rise in bitcoin demand and its value?
Let’s find out.
1. Scalability and growth
Scalability is one thing long debated by the cryptocurrency enthusiasts. Decentralization comes as a major attraction and a source of strength for bitcoin. However, the same power makes it difficult to take remedial measures that offer immediate effect.
Similarly, there is a need for greater consensus to make any changes on such a significant scale.
The buyers of bitcoin want it to have the higher transactional capacity. They believe that increase in transactional size would help increase the cost-effectiveness of the transactions. This way it would be able to reach its full potential.
There are several proposals under consideration. The community is still trying to find consensus to satisfy the majority. Also, it would have to ensure that whatever action it takes benefits the community as a whole.
2. Change in legislation supporting growth
Despite the early skeptics not in favor of considering bitcoin a regular currency and criticizing for different reasons, finally, the financial world is starting to catch up.
First, Japan announced in April this year that it would accept bitcoin as legal tender. Furthermore, the country would have necessary legislative amendments to bring it into the mainstream. Thus, such announcement from one of the world leading economies gives bitcoin greater stability and confidence of the investors.
Now, Japanese investors and businesses can transact using bitcoin. Peach, one of the commercial airlines in the country is accepting payments via bitcoin.
Similarly, Australia has announced that it would draw necessary legislation to remove double taxation on the cryptocurrency. Australians who use this cryptocurrency for making purchases need to pay a 10% tax on goods and services. The tax is levied in Australia since they consider cryptocurrency as intangible property.
Australia no longer collects a double taxation on cryptocurrency purchases. This is facilitating the adoption of this cryptocurrency in Australia.
3. Currency devaluation and currency regulation
There are many micro and macroeconomic factors determining the value of a country’s currency.
The citizens of these countries struggle to retain the value of the money they possess in local currency. Cryptocurrency provides them with a way to send and receive money without the fear of having it devalued.
In Zimbabwe, for example, Bitcoin is super hot. People in countries like Zimbabwe are losing faith in their local currency and financial institutions because of the increase in the political turmoil.
The matters of money supply and demand are also dependent on a country’s economic strengths and weakness. This is another factor that makes individual countries’ currencies vulnerable to devaluation.
Cryptocurrency, on the other hand, do not come under any regulations by central banks of the different nations. There is complete independence regarding the transfer of money.
We can take the example of Venezuela that has seen its currency facing hyperinflation. Citizens of other countries with similar nightmarish economic realities find other options more attractive. They consider such cryptocurrency as a way to preserve the value of the assets that they own. Therefore, they choose to invest in alternatives like bitcoin and resultantly increase its demand as well as value.
Many other countries are evaluating the friendliness of their legislation towards cryptocurrencies. Russia and India are two of the leading nations looking to improve their legislation to accommodate transacting in it.
4. Institutional investors keen to invest in Bitcoin
For any currency to become famous, it has to have the backing of the financial institutions. Therefore, the early skepticism of the financial institutions towards bitcoin is slowly turning into confidence.
The outstanding financial performance regarding returns is beating many other viable investment options.
Investors are also finding cryptocurrencies very lucrative regarding the high rate of return. So, besides individuals, even institutions are also taking a lot of interest in investing in cryptocurrencies.
The availability of ETN, a bitcoin tracker that goes with the name of Bitcoin Tracker makes investing in it more attractive. ETN mirrors the price on which bitcoin is currently trading in the market.
Many of the institutional investors in Japan are also taking an interest in investing in cryptocurrency through mechanisms like ETN. These institutional investors, using such investment vehicles can offer a better rate of return to their investors.
5. Rise of interest in it from Asia
Asia is a rising continent with any countries becoming economically powerful with an overall increase in the level of prosperity. China and South Korea did not welcome the bitcoin. However, investors in these two countries are taking a lot of interest in acquiring it.
Many investors are also willing to pay a premium to get their hands on it. For example, the OKCoin exchange of China and many others like it facilitate the trade.
Similarly, despite a ban by South Korea, there is a high demand there. Japan, after legitimizing bitcoin is expected to fuel the increase in the price.
6. Media is highlighting cryptocurrency
When it comes to the power of media to highlight something, there is no limit to the hype it can create. Bitcoin has been in the media spotlight for the last two years. There is no sign that this interest will die down anytime soon.
When media discusses something at such an intense level, it becomes the talk of the town. Everyone is frequently debating this topic, and it becomes part of the daily gossip.
When a cryptocurrency makes it to the front page of publications like the Wall Street Journal, it is hard for it to go unnoticed by the public. This mainstream recognition means that any movement in the price of this cryptocurrency will become “breaking news” of the day. Therefore, there will be more interest in the days, weeks and years ahead.
The heights that bitcoin price has achieved and the history it has created is difficult to forget.
These are some of the factors contributing towards a fast increase in the price of the bitcoin. There can be many other things to consider.
No one knows what price points bitcoin will touch in the future. However, the sky is the limit, and it depends on the overall environment supporting its growth and the ecosystem that it requires to progress further.
John Elijah is a contributing writer for HoursTV.com. He actively reads and contributes to topics like personal financial management, mutual funds, stocks, and long-term maturity bonds. He is keen to share his knowledge through his in-depth and well-researched writings.