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"Crypto" has become the new cryptic buzzword of the town and the surge of cryptocurrencies is changing the global financial landscape.
A cryptocurrency is a medium of exchange (like the US dollar) that is digital and uses encryption techniques to control the creation of monetary units and verify the transfer of fund. It is underpinned by blockchain or “distributed ledger” technology where participants can confirm transactions without the need for a central clearing authority in a peer-to-peer (P2P) network.
Why cryptocurrencies are taking the financial market by storm?
Why cryptocurrencies are taking the financial market by storm?
Some factors for the success of cryptocurrencies are:
Operational efficiency and transparency in financial payment systems
Demand for remittances in developing countries
Data security
Improved market cap
Countries that have been welcoming to cryptocurrencies
Countries that have been welcoming to cryptocurrencies
Evolving demographics, rise in consumerism and openness toward new technologies provide lucrative opportunities for cryptocurrency across developing nations.
According to Oxford Business Group, Nigeria is the leading country for Bitcoin and cryptocurrency adoption due to use it as a means of sending remittances.
Rise in smartphone penetration in Latin America and Africa enables mobile payment service providers to offer sophisticated services on mobile phones.
Why is there a variation in prices of different cryptocurrencies?
Why is there a variation in prices of different cryptocurrencies?
Rank is the relative position a cryptocurrency occupies in the market. Usually, the rank of a digital currency is evaluated by its market capitalization.
Market Capitalization, or market cap, is calculated by multiplying the price of a cryptocurrency with its circulating supply at any given time
Circulating Supply is the total number of coins or tokens that are actively available for trade and are being used in the market and in general public.
We see that some cryptocurrencies have a very high value while others are very low.
Cryptocurrencies usually aren't governed or backed by any central authority. cryptocurrencies are generally decentralized, they derive their value from other sources, including:
Supply and demand
Cost of production
Ease of exchange
Competition
Governance
Regulations
Demand and supply are major factors in any industry. Let's learn more about its impact!
Impact on market cap based on the age of cryptocurrency
Impact on market cap based on the age of cryptocurrency
Cryptocurrency prices depend on the perceived value, supply and demand. If people believe it is worth a particular amount in the future, they will pay a higher amount in the present.
By design, there will only ever be 21 million Bitcoins created. The closer Bitcoin gets to its limit, the higher its price will be, as long as demand remains the same or increases.
One of the primary reasons for the rise in the price of Ethereum is the surging popularity of DeFi (Decentralized Finance). Ethereum hosts a lot of DeFi projects on its blockchain network.
Shift in share of cryptocurrencies in the market
Shift in share of cryptocurrencies in the market
The market share of various cryptocurrencies have changed over time with new entrants in the market.
Initially Bitcoin occupied a majority chunk of the market. Slowly as the market started growing other came in and people started investing.
Even though the market share of Bitcoin seems like it has decreased, it's value has increased over time thereby maintaining its supremacy.
Diving deeper into the oldest cryptocurrency - BITCOIN
Diving deeper into the oldest cryptocurrency - BITCOIN
Change in price and volume of Bitcoin over time
Change in price and volume of Bitcoin over time
Volume shows the total value of crypto traded. It is an extremely important indicator for traders to determine the future profitability of cryptocurrencies. A greater volume of cryptocurrency transactions leads to fair cryptocurrency prices and removes the chance of distorted pricing.
Bitcoin had a price of zero in 2009 on introduction.
2013 witnessed strong gains in price.
Prices slowly climbed through 2016 to over $900
In 2017, Bitcoin's price hovered around $1,000 until it broke $2,000 in mid-May and then skyrocketed to $19,345.49 on December 2015
Mainstream investors, governments, economists, and scientists took notice, and other entities began developing cryptocurrencies to compete with Bitcoin.
In 2020 the economy shut down due to the COVID-19 pandemic—Bitcoin's price burst into activity once again increasing 416% from the start of that year. The pandemic shutdown and subsequent government policy fed investors' fears about the global economy and accelerated Bitcoin's rise.
By mid-April 2021, Bitcoin prices reached new all-time highs of over $60,000 as Coinbase, a cryptocurrency exchange, went public which led to Bitcoin's price to grow by 66% in February 2021.
In January 2021, the digital asset’s rate was just $30 000. By February, it went up by about $20,000, according to cryptocurrency stats. Even more impressive, it was only worth $10 000 a year ago. That makes a 400% increase in value by Q1 of 2021!
Mining of Bitcoin over time in various countries
Mining of Bitcoin over time in various countries
Cryptocurrency mining is the process where specialized computers, also known as nodes or mining rigs, validate blockchain transactions for a specific coin and, in turn, receive a mining reward for their computational effort.
Mining requires computers with high computational power to solve complex mathematical problems. It is best done in areas where electricity is abundant and affordable as well as has the ability to support the technology with strong internet connectivity. Furthermore, the regulatory environment must be favorable as well.
In China, cheap electricity is readily available, with some power companies rumored to be pointing their excess energy towards Bitcoin mining facilities in order to avoid waste.
The United States offers electricity that is quite affordable relative to some other countries, but the numbers vary state to state, with Louisiana, Idaho, Washington, Tennessee and Arkansas being the most affordable.
Adoption of bitcoin
Adoption of bitcoin
A post on Bitcoin surfaces on social media every three seconds
Bitcoin alone accounts for $6 billion of daily online transactions.
Rise of Bitcoin in the US
Rise of Bitcoin in the US
A bitcoin ATM is an Internet-connected kiosk that allows customers to purchase bitcoins and/or other cryptocurrencies with deposited cash. It produces blockchain-based transactions that send cryptocurrencies to the user's digital wallet, often via the use of a QR code.
Bitcoin is being widely used in the US.
All Bitcoin ATMs allow the user to use cash to buy Bitcoin and send it to a Bitcoin wallet of your choosing. Bitcoin ATM transactions are fast and typically processed within 3 minutes.
Many turn to Bitcoin ATMs for their first foray into cryptocurrency. Using a Bitcoin ATM does not require extensive experience. It is as simple as selecting which crypto you would like to purchase, scanning your digital wallet, and inserting your cash
Risks of cryptocurrency
Risks of cryptocurrency
An excerpt from temporary fame gained by a cryptocurrency
An excerpt from temporary fame gained by a cryptocurrency
Dogecoin, the most popular meme coin, has witnessed a roller-coaster pricing recently. In the first two weeks of May 2021 alone, the market cap dropped from ~$92 billion to ~$46 billion, and as of October 2021, the market cap reached ~$32B.
The joke coin was first put on the market in 2013 and had no use cases except for a few fundraising opportunities launched by fans on reddit. However, celebrity influencers such as Elon Musk and Snoop Dog created a hype over the coin giving it exposure in the past year making it the 6th top cryptocurrency and encouraging the creation of other dog inspired joke coins such as Shiba Inu coin, DogeFi, and UnderDog.
Although it gained popularity recently, Dogecoin doesn’t have impactful use cases, therefore it doesn’t seem like a reliable investment for the long term. As of June 2021, it is trading at about half of its peak value (achieve in May 2021).
Rise of cryptocurrency exchange platforms
Rise of cryptocurrency exchange platforms
We keep our physical money in a wallet. Similar is the case with cryptocurrencies.
An increase in cryptocurrencies gave rise to the need of wallets and multiple wallets have come into the picture. There were 68 million wallet users by February 2021.
Global trading revenue generated by cryptocurrency exchanges hit $24.3 billion in 2021 to surpass total revenue generated by traditional stock exchanges like the New York Stock Exchange and the Nasdaq for the first time ever, according to a report published by financial-services consultancy Opimas.
Conclusion
Conclusion
As of today, there are 12,000 different cryptocurrencies in existence, with 2021 seeing 1000 new Cryptocurrencies every month. By 2021, it is estimated that Global Crypto Ownership rates at an average 3.9%, with over 300 Million Crypto Users Worldwide and over 18,000 businesses accepting Cryptocurrency as an option of payment. But among all the cryptocurrencies available, Bitcoin is the most popular with most market ownership, with 65% of Cryptocurrency users being Bitcoin owners. Statistics on cryptocurrency volume by country reveal that 48% of all token sales came from the US in 2020. And in 2021, 89% of the US Population had heard of Bitcoin, and around 22% of the adult population (46 Million) of Americans own a share of Bitcoin.
Cryptocurrency is a fascinating notion that has the potential to transform the global financial market for the better. While Bitcoin is based on good, democratic ideas, it is still a technological and practical work in progress. For the time being, nation-states appear to have a near-monopoly on money production and monetary policy. Meanwhile, cryptocurrency users (and non-users who are attracted by the concept's promise) must be constantly aware of the concept's practical constraints. Any claims that a particular cryptocurrency provides complete anonymity or exemption from legal liability, as well as claims that individual cryptocurrencies are flawless investment possibilities or inflation hedges, should be treated with caution.
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