Before the inception of digital currencies, no one ever imagined that these currencies could stake their claim in the mainstream financial markets. Some key players in the financial markets even suggested that digital currencies were more of a failed experiment, rather than a workable currency. However, digital currencies have confounded proponents and critics alike, with their strong performances in the financial markets. The use of cryptocurrencies has now become the optimum choice for many, as they provide a secure way of making transactions. Additionally, these digital currencies offer unrivaled anonymity that conventional currencies do not provide.
The Bitcoin is one of the most visible currencies in the digital currency world. Ever since its launch back in 2008, the currency has grown in stature and is now among the most popular cryptocurrencies. Its use is now quite common, with prospects suggesting that they could replace conventional currencies sooner rather than later. Moreover, what is more surprising is that this digital currency has witnessed a dramatic rise in value. While some financial experts thought that this rise was just a passing cloud, the opposite is true, as the currency’s value continues to rise steadily. Here are a few reasons why the value of this cryptocurrency has gone up so abruptly:
1. RISING POPULARITY OF BLOCKCHAINS
The dramatic increase in value of the Bitcoin cryptocurrency has been attributed to the rise in popularity of the blockchain distributed ledger technology. A blockchain is a public ledger of all the transactions that have ever been undertaken in this digital currency’s network. The fact that all users within the network can access this ledger, has led to its popularity, and this has subsequently led to an increase in value of this cryptocurrency.
The blockchain technology is fast gaining prominence, and quite a number of users are utilizing it for their commercial transactions. It is not unexpected that a number of financial experts now regard blockchain technology as a force to reckon with, in the commercial spheres.
2. INFLOWS AND DEMAND
The high demand for cryptocurrencies has consequently led to their rise in value. The influx of flat money, coupled with the tightening of cash and gold controls has led to the high demand for Bitcoins. EU nations, in particular, have restricted the inflow of cash and precious metals, in a bid to limit money laundering and prevent the financing of suspicious groupings. The EU has also recommended stringent measures in the distribution of digital currencies, but this is yet to take effect.
The currency’s low liquidity has also driven its price gains. The ability to acquire digital currencies without affecting market prices is more appealing to users.
3. HALVING OF MINING COSTS
Digital currency transactions take place through mining, with miners receiving rewards from their endeavors. The process of mining involves working with CPU systems to continuously calculate hash algorithms and create successful blockchains.
This has excited cryptocurrency users and has further pushed the prices of digital currencies up. The balance of supply and demand has also been affected tremendously by this halving of rewards, with demand for digital currencies hitting the roof.
When the Great Britain announced that it would be leaving the European Union in an indefinite timeframe, a process known as Brexit, a flurry of activities hit the financial markets. The digital currency space was not left behind, as more users opted for digital transactions rather than conventional hard money transactions. Although the digital currencies experienced a short dip following Britain’s announcement to leave the EU, the currencies regained stability after it emerged that Brexit was actually good for digital currencies. The increased uncertainty affecting major currencies has seen users jumping ship to the cryptocurrency world. Financial experts suggest that Brexit factors could triple digital currency transactions in the foreseeable future.
5. CHINESE FACTOR
China is one of the most influential countries in the financial markets. Market responses caused by news from the People’s Bank of China have been affecting the steady rise of Bitcoin prices, over the years. While most of these sentiments have led to a plunge in digital currency prices, measures by the PBOC to reverse part of the devaluation of the Chinese Yuen will definitely see an increase in digital currencies. However, China’s influence on digital currencies seems to be declining, with the rest of the world gaining ground in mining power and trading volumes.
6. US ELECTIONS
It might surprise you, but the US elections of 2016 saw an upsurge in the prices of digital currencies. The 2016 US election was one of the most unpredictable elections in US history. No one projected that Donald Trump would win. Soon after his victory, the stock markets ran into a spiral, as traders were unsure about Trump’s economic policies. In view of this uncertainty, digital currencies performed tremendously well against major currencies, as many users thought it wise to transact using cryptocurrencies. Even though the elections passed a few months ago, digital coins have still maintained their high values.
Digital currencies provide the much-needed hedge that is required to overcome financial predicaments. As the demand for digital currencies increases, so does their prices. However, the high prices should not put off willing traders, for it is just a matter of time before digital currency users gain an advantage over conventional money traders.
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