Why Has Bitcoin Driven The World Insane?
Money’s game is evolving. Traditional fiat money depreciates when enormous quantities are produced out of thin air by central banks and governments. When people witness the value of their hard-earned wealth and retirement savings dwindle and melt like ice cream in the blazing sun, their trust in government erodes. Therefore, why are so many individuals becoming infected with the bitcoin bug? For more information on bitcoin-related articles, visit www.TheCryptoGenius.software.
Why are people so interested in cryptocurrency at the moment?
Cryptocurrency has been boosted by social media and forum chatter, which has aided in propelling its popularity and prices “to the moon.” This includes endorsements from Redditors and celebrities such as Mark Cuban, Snoop Dogg, Lindsay Lohan, and Elon Musk. Additionally, investing apps such as Coinbase and Robinhood have made it easier for novice investors to enter the market. And a third explanation is that the pandemic provided people with time, lethargy, and stimulus money to engage in recreational activities. Gold is frequently chosen as a haven asset by investors seeking security, as it is not subject to inflation, unlike the US currency. Because crypto is similar in this regard, some investors believe it could serve as a new form of haven.
The current surge in interest in bitcoin is undoubtedly spurred in part by the massive price increase. The climb from $14,000 to $14,000 took only 23 hours. It increased to $16,000 in another 15 hours. To put this into context, it took more than eight years for bitcoin to reach a value of merely $2,000. (It is necessary to emphasise, however, that the rising trajectory has not been effortless. The price has fluctuated dramatically over the last week, reaching an all-time high of $17,150 before settling around $16,620 at writing.)
The $10,000 barrier is meaningless in and of itself, according to neuroeconomist Benedetto De Martino, but humans have a strong affinity for round numbers. “With numbers, we have this overall sense that as you exceed a certain threshold, it becomes an entirely another thing,” he explains.
May become Inflation Hedge Replacing Gold.
A cryptocurrency is referred to as a “deflationary asset.” Because its supply is limited, it is not subject to inflation or depreciation, as fiat money is. This is why Bitcoin has been dubbed a hedge against inflation. It cannot be infinitely generated in the same way that fiat money can. How it works is as follows. If central banks continue to issue more of their national currency, the supply will expand. However, demand for the money will remain constant; there will be no additional persons needing it. As a result, the currency becomes more plentiful. If an asset is widely available and becomes increasingly rare, its value is likely to decline. This is fundamental supply and demand economics. To increase the value of a currency, either.
- Demand for it must increase in proportion to the available supply; alternatively.
- As illustrated here, supply must fall while demand remains unchanged.
Bitcoin: As a Currency
Some argue that bitcoin’s high price is due to its initial promise as an alternative to conventional currencies, citing a small number of merchants outside the dark web who accept bitcoin in exchange for products and services. They say that bitcoin has value because it can become a widely used alternative to existing currency.
Despite this, only a small number of people wind up buying cryptocurrencies in the first place. According to De Martino’s research, certain people are more prone than others to invest in a bubble market since they have more money to lose. A study by De Martino and his colleagues found that when we opt to invest in a quickly expanding asset, the portions of our brain responsible for judging other people’s ideas and feelings are also active.
The Mentality of the Herd
The actual reason people are interested in bitcoin is probably much more straightforward: everyone else is. As humans, we are readily drawn to conform to what everyone else appears to be doing, according to City, University of London’s Peter Ayton. “People are more inclined to participate simply because it is more familiar,” he explains. “The people around them enormously influence humans,” De Martino explains. “The only reason you purchase bitcoin is to believe that other people appreciate it as well.” In other words, those purchasing bitcoin are betting that another buyer will appear shortly willing to pay a premium for the same amount of the cryptocurrency. “The social phenomenon is similar to an avalanche; it is self-fulfilling,” he explains.