Here are 5 reasons for the current cryptocurrency market growth. Amidst all the volatility, the cryptocurrency market is recovering well despite COVID-19 disrupting major world economies. When companies were facing the heat of the pandemic with their businesses taking a hit, several crypto and blockchain startups launched themselves to support the roaring demand of Bitcoin and cryptocurrencies. While many crypto exchanges and trading platforms surfaced from across the globe, they also managed to raise significant funding from investors to grow their market position, like CoinSwitch Kuber that recently raised a funding of INR 109 crore (US$15million – Series A funding) from big fintech players like Ribbit Capital, CRED, and Paradigm.
Bitcoin, the largest crypto coin in the world, fueled the cryptocurrency market by raising its market capital beyond US$1 trillion. Bitcoin has been bullish for the past few weeks now which contributed to 69% of the total market value. Bitcoin investors are cheering for this rally as Bitcoin plummeted during the crypto market crash and is now finally getting back to its pace. This is the same Bitcoin that reached its all-time high of US$60,000 in early 2021.
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But how did the market undergo this successful correction? Here are five reasons that can sum up the growth.
1. Green signal from institutions What was once looked at with speculation, Bitcoin is now being accepted by major institutions from around the world. Despite its volatility, the crypto coin is being considered a safe asset, making way for cryptocurrencies to earn a similar reputation. Recently, many public companies, like Square, an American payments company, and Microstrategy, a publicly listed US company, are converting their cash treasuries into cryptocurrencies by buying Bitcoins.
2. Paypal crypto exchange Paypal has approximately 350 million users. In 2020, Paypal launched a new feature that would allow its millions of users to buy and sell cryptocurrency on the platform. This feature included the trading of crypto coins like Bitcoin, Bitcoin Cash, Ethereum, and Litecoin. This is a significant move for the crypto industry as Paypal was one of the sternest critics of cryptocurrency. Following Paypal’s suite, Venmo also launched a similar feature that allows its users to make crypto payments.
3. The scarcity factor Cryptocurrencies are made available in a limited quantity, even Bitcoin. But Bitcoin’s practice of halving its quantity adds a major boost to its value. It’s a basic economics principle, a scarce commodity is valued more than others because of its exclusivity. The Bitcoin network works because it introduces new coins through mining. In this process, Bitcoin miners verify Bitcoin blocks. Every 10 minutes, a miner verifies one block of transactions and adds it to the Bitcoin network to earn rewards. At present, the reward is 6.25 BTC per block, and this reward reduces by half every four years or after 210000 blocks mined. This slashing of Bitcoin rewards to half is known as Bitcoin halving.
Since only 21 million Bitcoins are made available in the market, when the reward decreases there is less circulation in the market which increases the demand for the coin due to the scarcity factor. This, in turn, affects the value of other cryptocurrencies.
4. Easy Accessibility Initially, cryptocurrency was supposed to become a mode of payment. But now, it has also become a store of value. Even if users are unwilling to use cryptocurrency to make payments, they are ready to invest in it like an asset. In countries like India where RBI is against cryptocurrency, investors are holding them for their value. Many platforms have also come up to make crypto as an asset easily available.
5. Acceptance from countries As many private investors and institutions are adopting cryptocurrencies as a means of payment, many governments are also coming on board to form crypto regulations. Countries like Japan, the USA, Germany, and El Salvador have taken a positive approach towards cryptocurrency. As a first, El Salvador decided to use Bitcoin as legal tender.