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A Brief Look at How Digital Currencies Work

by GBAF mag
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The value of bitcoin has been historically very volatile. In a span of three months between October of 2021 and January of 2021, the daily volatility of the price of bitcoin rose to more than 8%. This was more than double the volatility of bitcoin at the end of January of 2021. At the time of this writing, the daily volatility of the value of bitcoins is still high. This has left many people wondering: Why is it that I should buy into this hype?

One reason why I think the hype is valid is because there are several benefits that I see that can be made with the utilization of this futuristic digital currency. I call this the “all-time high” in the hype because the value of bitcoins has all-time highs being referred to in the trading community. I would argue that this is a positive thing because the high gives the coin and the community around it a boost of confidence that the technology behind the coin is sound. I call this the “all-time high” in the hype because all-time highs are good in whatever market you’re trading.

What I’m talking about is the projection of economic growth in 2021. If you look at the line graph of bitcoin from August of 2021 through the end of July, you will notice that there is a steady increase in its price. If you look at the same graph from December of last year, it shows a sharp drop. This was caused by an uncertain economic outlook caused by the global financial crisis.

With regard to the forecast of economic growth in 2021, this is a pro for those who have invested in bitcoin and other digital currencies. It indicates that there is less likelihood of hyperinflation in these currencies because there is no central bank to control the supply of money. They are not backed by any commodity or currency reserves. Governments cannot print too much money, because that would cause hyperinflation. In fact, it is the fear of hyperinflation that has driven investors to buy these kinds of commodities.

As long as the supply of bitcoins is stable, investors can use their money to purchase goods and services worldwide without worrying about an unstable government or economic system. Hyperinflation can happen if the value of the national currency rises above a certain level. That’s why many people worldwide have turned to digital currencies like bitcoin to store their wealth because they don’t have to worry about their national currency falling to extreme levels. As long as investors continue to use this kind of investing strategy, the chances of economic and political instability are minimal.

I mentioned that the likelihood of an economic collapse is slim, but there is also a chance that gold will regain its previous dominance in the world of money. Since the price of gold is determined by the demand for the metal, it is easy to see how the precious metal has soared in value over time. People buy more gold as the days pass, and the supply simply doesn’t keep up. It used to be that the U.S. was the largest buyer of gold, but China has recently surpassed it. So right now, if you wanted to invest in gold, you would do well to stick with the traditional method of investing, which is with U.S. dollars.

Unlike the government, which can print paper money to pay for wars, the central banks of most countries are not allowed to intervene in the running of the market. That leaves the investors who buy bitcoins to ride out any fluctuations on the digital currency market. They are able to profit from both the rise in market price and the fall in market price as these two things are usually related. When investors buy bitcoins for the purpose of selling them later at a profit, they take advantage of a rising market price.

There are times when investors choose to buy bitcoins based on pure speculation. This makes them an attractive investment because there is no physical commodity being traded. In this case, investors are betting that the price of one particular currency will rise. They can make a profit from the difference between the buying price and the selling price. The only way that they can make any profits is if the prices do indeed rise. Even though it may sound like a bubble, they are actually quite lucrative.

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