Although Bitcoin is popular, it is important to understand the fundamentals that determine its pricing and adoption.
Blockchain is a distributed ledger that records transactions between two parties in a secure and open manner. Blockchain technology has revolutionized the way transactions are processed – transactions are now decentralized, scalable, running 24/7 with no central middleman, and highly secure. Bitcoin, the first real-world blockchain application, acts both as a payment mechanism and as a store of value.
As an investor in this asset class, it is relevant to understand the fundamentals that drive Bitcoin (also called BTC in trading as a ticker). This article will help you understand the brief history as well as the potential growth cryptocurrencies can have in the years to come.
Supply and trade
Bitcoin has a fixed supply of 21 million of which 18.8 million are already in circulation. Each day, around 900 BTC is added to the offer (through a process called mining). This decreases over time and eventually by the year 2140 all BTC will be in circulation. However, it is estimated that 3 to 4 million of the 18.8 million supplies are blocked forever (investors no longer have access). Thus, the fixed supply of BTC creates an artificial scarcity that will increase its pricing in the years to come provided there is strong adoption.
However, BTC is divisible up to 8 decimal places. That is, you can trade / buy even 0.00000001 BTC (this unit is called SATS; 1 BTC equals 10 ^ 8 SATS). In India, you can buy Bitcoin for even 10 INR. BTC is therefore set up for large-scale micro-transactions in the future.
Price and adoption
BTC is trading at $ 47,700 today (Oct 2, 2021) – the equivalent of INR 37 lakhs. The price of BTC, although volatile, has steadily increased year over year. If you had invested
1,000 INR in BTC on January 1, 2016, this would be worth INR 1,09,791 today. Over a shorter period of weeks or months it is difficult to predict BTC’s price actions, but as an investor with a 4-5 year horizon you are likely to increase your wealth significantly with BTC.
More than 120 million users worldwide are exposed to cryptocurrencies today, of which around 75 million are said to own a certain amount of BTC. This means, on average, that each user has 0.25 BTC. Analysts expect cryptocurrency adoption to increase tenfold over the next 4-5 years, thanks to the strength of young economies such as India. Therefore, the average BTC holding will likely drop to 0.025 BTC in five years. This is clearly an advantage for early adopters today to enter BTC positions at a lower price.
Market capitalization of cryptocurrencies
Bitcoin has been the leader in the cryptocurrency world despite releasing thousands of new coins / tokens over the years. In terms of market capitalization, the cryptocurrency market today exceeds $ 2,000 billion. BTC accounts for over 43% of the market – this metric is called Bitcoin Dominance. This measurement changes in cycles of the order of 40 to 70 percent. At the start of this year, BTC’s dominance was around 70%. In the last quarter of this year, BTC dominance is expected to increase to 60% as investor money flows into this asset over all other cryptocurrencies.
The market capitalization of the cryptocurrency is around 2% of what is invested in stocks and stocks globally and therefore it is possible to grow at least 5 times over the next few years. BTC will be the dominant and safest crypto fueling this growth story.
Safety and regulations
The Bitcoin network has been operational 24/7 for 12 years without any failure or erroneous transaction identified. The system is supported by millions of interconnected computers similar to the Internet and is robust with no one in control of the system.
Governments have adopted Bitcoin several times in the past, but are slowly adopting this technology as user adoption increases. Developed countries such as the United States, United Kingdom, Japan and Australia have regulated investments in this asset. El Salvador, a country in Central America, has made Bitcoin legal tender in the country, with other such countries planning in this direction. India has proposed a settlement on the matter that could bear fruit by early next year.
Overall, Bitcoin is a safe asset with huge potential for growth in the years to come. 2021 is still considered early for this new technology, as mainstream adoption is set to explode with positive regulations for the asset class around the world.
Disclaimer: This article was written by Giottus Cryptocurrency Exchange in a paid partnership with The News Minute. Investments in cryptoassets or cryptocurrency are subject to market risks such as volatility and have no guaranteed return. Please do your own research before investing and seek independent legal / financial advice if you are unsure about investments.