Last year, the value of one bitcoin in US dollars nearly tripled, with gains of more than 160 percent in the fourth quarter alone. This resurgence fueled growing interest in bitcoin and cryptocurrencies in particular, among the press and investors. Furthermore, several payment sites, including BitPay, Square, including PayPal, have begun to embrace digital currencies as payment. Cryptocurrency trading on proven sites is also getting more convenient. We’ll look through some of the possible benefits and drawbacks of cryptocurrencies throughout this article.
The Benefits
1. High-Returning Opportunities
The S&P 500 measure of big cap US stocks has multiplied at an annualized rate GDP growth of 14.5 percent (in USD, net earnings redistributed) over the five years to 31 December 2020; the value of bitcoin in USD has multiplied at an annualized basis rate of increase of 131.5 percent during the same timeframe.
2. The Possibility of Diversification
In the form of a fund, others have suggested that cryptocurrencies may be seen as an option to gold as a risk management tool. For instance, the S&P 500 fell in 17 of the 60 months leading up to December 2020, while the value of bitcoin rose in 7 of those months. A fund of 10% investing in bitcoins and 90% inside the SP 500 might have produced cumulative annualized reports of 26.8% over the five months to the beginning of 2020.
3. Exclusive Availability
The maximum number of coins that could be made, or “mined,” is 21 million. Approximately 18.5 million bitcoins are being created so far, leaving fewer than four million to be completed. A similar characteristic is that the pace at which bitcoins are generated slows over distance, a phenomenon known as halving. In 2009, each blockchain produced was worth 50 bitcoins; today, each blockchain is valued at 6.25 bitcoins.
4. Protection from Depreciating Currencies and Increasing Inflationary Pressures
The 2008/09 Global Financial Crisis (GFC) prompted central banks worldwide to pursue unconventional monetary strategies, including large-scale bond buying. After the financial crisis, the Fed’s financial statement has grown by eight times, the ECB’s by just under four times, and the Bank of Japan’s by almost seven times. Some fear that this would lead to a significant depreciation in national currencies and an uptick in inflation as a consequence. They claim that cryptocurrencies have substitutes that cannot be denigrated in the same way that traditional currencies may. Before we dive into the negative’s aspects of cryptocurrency, if you were fascinated by the positives and want to trade but have no good secure platform for trading then you should register yourself on the read more to start trading and earning.
Negative Aspects
1. Excessive Uncertainty and The Risk of Significant Losses
For the last five years, the annualized basis variance of the annual percentage rise in the value of cryptocurrency in US dollars has been about 90%. Overall, the annualized uncertainty of the quarterly percent shifts in the S&P 500 and the price of gold is 15.3 percent and 13.4 percent. Remember the scale of rates of return: for the 60 months ending December 2020, the average monthly bitcoin gain was 76.1 percent, while the maximum was -37.6 percent. The pace of a bitcoin or some other cryptocurrency transaction would directly affect the return obtained.
2. Correlations
As previously stated, the bitcoin price increased in eight of the 17 days, during which the S&P 500 dropped during the five years ending in 2021. And to put it differently, bitcoin fell in 10 of the 17 months that the S&P 500 fell, which is far less encouraging. The price of bitcoin fell in four of the S&P 500’s five worst years, suggesting that bitcoin has a weak track record of offering higher returns while they are required. The connection between bitcoin and the S&P 500 is higher and more favorable than the connection between gold and the S&P 500.
3. An Infinite Amount of Opportunity
While it is clear that the total amount of bitcoins issued would inevitably be restricted at 21 million, as well as many other coins have limited supply incorporated into their protocol, there is still no preventing an ever-increasing series of innovative bitcoins from just being released. As a result, the availability of cryptocurrencies can be infinite. It’s also worth mentioning that several central banks are considering issuing their digital currency, which may dim the appeal of privately distributed models.
