The expert told what affects the value of cryptocurrencies and how bitcoin is similar to gold
Kyiv • UNN
The value of cryptocurrencies is affected by a number of specific factors. The expert explained what halving is and how this factor affects the value, primarily of bitcoin.
In addition to supply and demand, which traditionally affect the price of most assets, the value of cryptocurrencies is affected by a number of other specific factors. Elena Sosiedka, co-founder of Ukraine's first fintech ecosystem Concord Fintech Solutions, told UNN in a comment.
As with most assets, price is determined by the balance between supply and demand. For example, the halving of bitcoin, which cuts the reward for mining blocks in half, reduces the supply of new coins, which can affect price
The expert explained what halving is and how this factor affects the value, first of all, of the most popular cryptocurrency - bitcoin.
"Halving is the process of halving the reward for mining new blocks in the bitcoin blockchain, which occurs about every four years. It is a mechanism aimed at reducing inflation and managing the total number of bitcoins,"Sosiedka explained. She also noted that while halving is best known in the context of bitcoin, similar mechanisms can be applied to other cryptocurrencies that have limited supply.
This process helps stabilize and slow the generation of new coins, affecting the economics of the cryptocurrency and potentially its value in the market. As Neighbor notes, past practice has shown that halving can provoke a rise in bitcoin's value. The next halving for this cryptocurrency is expected around April 2024.
News about regulation or introduction of bans in different countries also have a significant impact on the price of cryptocurrencies. Investment interest in cryptocurrencies can also contribute to price growth.
"General economic trends, such as inflation, can also affect cryptocurrency markets. For example, high inflation can encourage investors to look for "protective assets", which can include bitcoin. Or, for example, the policies of the U.S. Federal Reserve affecting financial markets in general, including the cryptocurrency market. For example, rate decisions can affect investment appetite for risky assets such as cryptocurrencies," Sosiedka adds.
Technological changes and upgrades are another significant factor.
"Developments in blockchain technology can influence the perception and functionality of cryptocurrencies. Developments and improvements in technology, including the emergence of spot bitcoin ETFs, can increase the inflow of institutional investment and, as a result, support the growth of cryptocurrency prices," the expert explains.
She notes that the value of digital assets, is also influenced by geopolitical factors.
"Instability in global politics and economics may contribute to an increased interest in cryptocurrencies as alternative assets," says Sosiedka.
Bitcoin is often compared to gold. Elena Sosiedka explained the similarities between these assets and how they differ.
"Comparisons between bitcoin and gold are often made because of its properties as a digital store of value. Like gold, bitcoin has a limited supply and is sometimes used as a hedge against inflation. However, bitcoin also has distinctive features, such as high portability, divisibility and transparency," the expert explained.
