Bitcoin is the best known cryptocurrency. It’s an online payment system that uses encryption to regulate the creation of new bitcoins. If you’re new to cryptocurrencies, you might be wondering what bitcoins are, how they’re created, and how they’re traded.
Bitcoin prices are influenced by supply and demand.
A Bitcoin is only worth as much as someone is willing to pay for it.
There are three main reasons why people buy Bitcoin.
Speculation – People think it will go up in price and want to sell it at a profit later. The theory is because there will never be more than 21 million BTC Bitcoins, it makes it a rare and finite commodity. Because of this limited supply, it is also seen as a hedge against inflation, like a digital version of gold. Being a purely digital asset, it’s even easier to store, transport and buy than the precious metal.
Payments – People want to use it for payments. Bitcoin can be a more challenging (but also a cheaper and faster) way of making international payments than other money exchange transfers.
Economics – People think the design of the Bitcoin network means Bitcoin is more secure than government currencies such as the US dollar. Can you keep printing Trillions of Dollars with no Economic 101 fundamentals coming into play? We’ll go deeper into Economic Monetary Policy Soon. The curious investor is worried about government stimulus and are concerned elements such as national debt and inflation will cause the value of government money to fall, otherwise known as FIAT currency while leaving Bitcoin unaffected.
The theory is that by holding some BTC known as Bitcoin, people can still have money even if their government collapses. Consequently, Bitcoin has become more popular in countries suffering from political instability than it has in more-stable regions. Eg this week Ecuador made Bitcoin Legal Tender This Week!!
Some investors also believe it’s a worthwhile addition to their portfolios in small amounts, because other markets, such as the stock market, forex markets and commodities are all closely interconnected, and at risk of falling all at once.
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