Digital currencies are based on blockchain technology and are often used as alternative payment methods. Cryptocurrencies got their name from the cryptographic techniques used to create them. They have been developed as online solutions that allow internet users to spend their finances securely without interacting with a third party like a bank or government. Bitcoin has always been the most well-known asset in the sector, and people usually know where to buy Bitcoin and how to spend it. Bitcoin has dominated the crypto market in the last few years because it’s a form of payment that no central bank or authority controls, and people trust it. While many other digital currencies have the same underlying technology, they failed to gain the same level of popularity as Bitcoin.
Is there a reason people turned their attention to Bitcoin and other cryptocurrencies?
Why do people invest in digital currencies? For the same reason, they are interested in any other asset that promises to bring them a profit. They hope the cryptocurrency they purchase (Bitcoin or another) will increase.
When the demand for an asset like Bitcoin grows, the relation between the supply and demand directly impacts its value. Suppose one day, people decide to use Bitcoin for purchases on a big scale; the effect would be that demand for the asset will spike, and its price will go up. Therefore, the investors who purchased Bitcoin before the demand for the cryptocurrency increased can theoretically sell it now for more than when they bought it and make a profit.
The same principle applies to all cryptocurrencies. However, we must highlight that not all blockchain-based projects have the same potential.
Why is Bitcoin the most popular asset in the sector?
People have waited for Bitcoin to disappear from the market since its inception, but it proved them all wrong and registered a skyrocketing ascension. At the beginning of 2014, it was valued at less than $900, and everyone thought the asset was in its bubble time. Then, it grew in value until 2017, when it reached a new all-time high of around $3000. Investors rushed to call it a bubble again, and again Bitcoin went up. Since its launch on the market, it experienced several bear and bull markets every time; skeptics thought it wouldn’t recover.
At the end of the present crypto winter, Bitcoin is once again growing in value, and people expect it to reach a new high during the next bull market. Industry experts believe that the latest price increase results from the SEC of a spot Bitcoin ETF because it offers a new level of exposure to users and makes it easier for investors to hold Bitcoin in their accounts.
However, Bitcoin supporters think its surge in value results from a series of factors. Let’s remember that it goes through a halving every four years, and the next one will occur in 2024. Every time it gets closer to a halving event, the cryptocurrency registers price spikes because its supply is getting lower. The last halving event happened in 2020, and the reward dropped from 12.5 to 6.25. In 2024, the reward will go from 6.25 to 3.125. Therefore, fewer Bitcoins will be available for purchase, the asset’s scarcity will go up, and investors will most likely adopt a speculatory strategy.
What factors impact Bitcoin’s value?
If you’re a beginner investor, you most likely want to understand what makes Bitcoin’s price go up and down so you can predict its evolution in the following months and figure out how to invest in one of the most notorious cryptocurrencies.
A central authority doesn’t back Bitcoin, as traditional currencies do, so no government or central authority controls it. This could serve its value growth but could also turn some investors away from adding it to their portfolios because an authority backing it would boost its reliability.
Blockchain-based cryptocurrencies are decentralized; hence, they derive their value from the following sources:
– Supply and demand
– Production cost
– Availability in cryptocurrency exchanges
What does it mean that Bitcoin dominates the crypto market?
When we speak about Bitcoin’s dominance, we talk about its market capitalization ratio. Investors often use this metric to understand the sector better and identify possible trading opportunities. They calculate the dominance according to the coin’s present market capitalization in relation to the overall crypto market cap. An asset’s market capitalization is calculated by multiplying the number of coins available in circulation by the market’s price per unit.
Crypto traders calculate Bitcoin’s dominance on the market by checking its relationship with the other cryptocurrencies. They rely on this metric to understand what happens in the market and identify possible trading opportunities and trends. The historical data shows that a large part of the market follows Bitcoin’s direction, regardless of the type of project. Therefore, as Bitcoin dominates the market cap, its value is correlated to that of altcoins as it affects their price movement. It’s right to assume that the investors who understand Bitcoin’s dominance understand the trends in the entire market.
For a beginner to understand how Bitcoin’s dominance functions and when it changes, it’s essential to focus on the two factors that make up the ratio: the overall market capitalization and Bitcoin’s market cap. Therefore, as the amount of available Bitcoins is about to drop during the next halving event, it has a more significant influence on the market. Additionally, as its price continues to rise, its dominance is expected to grow proportionally.
Is Bitcoin a good investment?
Bitcoin, together with the other cryptocurrencies, is a risky investment, no matter what strategy you use. It should make only a small portion of your investment portfolio so you can mitigate the risk associated with buying such a volatile asset.