Nothing, according to the experts we talked to. Given the history of volatility of cryptocurrencies, this increase does not guarantee a long-term reversal. The price of bitcoin is as likely to fall again as it is to continue rising. The value of cryptocurrency is determined by supply and demand, just like anything else people want.
If demand increases faster than supply, the price rises. For example, if there is a drought, the price of grain and agricultural products increases if demand does not change. The same principle of supply and demand applies to cryptocurrencies. Cryptocurrency gains value when demand rises above supply.
With inflation high, stock markets collapsing, and investors fearful about the Federal Reserve's bold new monetary policy, you'd think this would be an ideal time to bet on Bitcoin. Currently, only a few major companies accept bitcoin directly or indirectly through a third-party digital wallet application, including Microsoft, PayPal, Overstock, Whole Foods, Starbucks, and Home Depot. Buying Bitcoin used to be something reserved for early tech-savvy users, and a journalistic genre briefly emerged to explain to perplexed readers how to exchange dollars for Bitcoin and then exchange Bitcoin for something normal, like pizza. Large investors who have been on the sidelines could, at some point, invest in bitcoins and cryptocurrencies more broadly.
The decentralized algorithmic stablecoin is destined to be backed by a mix of digital assets, including bitcoin. On Monday, the LFG said it would lend hundreds of millions of dollars in Bitcoin to defend the binding of the UST stablecoin. Some experts also believe that TerraUSD (UST), one of the largest stablecoins, played a role in Bitcoin's crash last week. For many investors, earlier this year was not a good time to have crypto, and particularly bitcoin, the group's most popular.
If Bitcoin continues on this trajectory as it has in the past, investors are seeing a significant rise in both the short and long term future. Currently, there are 18.5 million bitcoins in circulation, or about 88.4% of Bitcoin's total supply. In a proof-of-work system, such as those used by Bitcoin and Ethereum, the more competition there is to mine a certain cryptocurrency, the more difficult it will be to mine. But there is another, even more esoteric factor at play in cryptocurrency markets recently, which has helped Bitcoin go even lower.
And I think a lot of them are thinking about the juxtaposition between digital currencies, such as Bitcoin, which have a verifiable scarcity, and they think about that in the context of fiat currencies, such as the US dollar, which are apparently printed unlimitedly. One is that cryptocurrency prices, and bitcoin in particular, have been tracking the stock market to some extent. The number of places where Bitcoin and other cryptocurrencies are accepted as payment is growing rapidly. In other words, embedded bitcoin is a synthetic form of inflation because a Bitcoin reward given to a miner adds new Bitcoins to circulation.