While many people have heard of Bitcoin, many others are still unaware of the currency. While a large number of early adopters have accumulated a large amount of bitcoins, the list of businesses that accept bitcoins is still small. This will need to grow in order to leverage the network effects of bitcoin. Currently, small trades, events and business activities can affect the price of bitcoin. As Bitcoin markets and technology continue to mature, volatility will become less noticeable.
Supply and demand determines bitcoin’s price
The prices of fiat currencies fluctuate due to supply and demand. When demand exceeds supply, the price rises. Conversely, when supply is high, the price is low. Supply is a major factor in determining price. Most goods and services react to increases in demand by increasing production, but bitcoin does not. This is due to the difficulty of adjusting to changes in demand. Hence, supply and demand are key factors in determining bitcoin’s price.
As in other commodities, demand depends on supply and quantity. A scarce commodity has a high price, while a plentiful one is cheap. Bitcoin’s supply is limited to 21 million coins. The Bitcoin protocol only allows a certain amount of new coins to be created each day. This rate is designed to slow down over time, with new bitcoins being created at a slower rate. In addition, the number of bitcoins created is reduced by half every four years (or halved) – the last halving took place in May 2020.
Early adopters have large numbers of bitcoins
The MIT Bitcoin Project offers $100 worth of bitcoins to incoming freshmen. MIT Sloan School of Management professors saw this as an unprecedented opportunity and have been studying early adopters in the spread of technology. Professors Christian Catalini, Fred Kayne Career Development Professor of Entrepreneurship, and Catherine Tucker, Sloan Distinguished Professor of Management, see this as an opportunity that should not be missed. They say that bitcoin will become a valuable asset for the economy and should be considered an early adopter.
To study the impact of depriving early adopters of new technologies, MIT professor Carlo Catalini studied the behavior of MIT freshmen. MIT had a unique opportunity to study the effects of denying early adopters exclusive access to new technologies. A couple of undergraduates raised $500,000 to offer $100 worth of bitcoins to incoming freshmen. This was followed by a survey. They observed the behaviour of early adopters and late adopters.
HODL strategy appeals to bitcoin maximalists
While the HODL strategy may appeal to the Bitcoin maximalists, it is not suited to all types of investors. There are two kinds of HODLers: those who believe in maximizing the amount of money in their digital wallets and those who do not. Bitcoin maximalists are often known as “toximaxis” for their aggressive Twitter behavior. A recent example is when Bitcoin VC and essayist Nic Carter revealed on Twitter that his fund had invested in a wallet-based login functionality. In a follow-up tweet, Nic Carter eulogized maximalism and jokingly fraternized with the dreaded “no-coiner.”
HODLers are often inexperienced traders who believe in the future of Bitcoin and believe in the currency’s potential to become a global store of value. This belief is fueled by the idea that the supply of Bitcoin will rise as more people recognize its potential as a store of value. Hence, these investors avoid the temptation of short-term trading and instead hold on to their investments. In addition, they argue that Bitcoin’s limited supply will only increase with time as more investors and governments recognize the value of the cryptocurrency.
Cryptocurrency’s role as a store of value
The emergence of cryptocurrencies in 2009 and their exponential growth since then has raised several questions about the role of cryptocurrencies as a store of value. The Internal Revenue Service (IRS) has issued guidance on virtual currencies, which refer to cryptocurrencies as a “unit of account,” “medium of exchange” and “store of value.” While some equate Bitcoin to gold, others question their utility as a store of value. Whether or not these coins are a safe investment is a matter of debate, but there are a number of benefits for consumers and investors. Whether or not they are a safe and sound investment is a critical question, and cryptocurrencies are subject to the same regulations as traditional currencies.
To be a store of value, a particular asset must be easily identifiable, easily verified, and indistinguishable from other assets. A good store of value will be fungible, meaning that all its assets have the same value in different markets or locations. This ensures that a given good or service will retain its value, and will not be counterfeited. Moreover, fungibility will prevent the market from being flooded with fake goods.
