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Cryptocurrencies like Bitcoin still are very volatile and still depend on numerous factors from the outside.
Since last year the whole world is talking about one new trend on the market: cryptocurrencies. For many it is the money of the future, a new concept that will go beyond the good old fiat currencies, connecting the world at the speed of light and making the impossible possible. For others, the new digital currencies are just an unstable and highly speculative way of investment which will as quickly disappear as it jumped on the market.
However, Bitcoin and its siblings have already taken a big role in many sectors of the market and many companies and platforms already accept the new payment method. Whether it is crypto games, Bitcoin Casinos or some retail shops, there are many places to pay with cryptocurrencies.
Nevertheless, both the trust and the concerns about cryptos are reasonable. We could see a great rise in Bitcoin in the last months but must admit that the charts of the crypto giant do not really look reliable and stable. Some have made a quick fortune, others lost everything they had. Those who follow the development of the crypto market know that a statement of Elon Musk for instance can impact the price even more than a statement of the Turkish president is influencing the Turkish Lira exchange rate.
This is one of the reasons why efforts are made to invent new cryptosystems or even national cryptocurrencies with high stability. But how volatile is the crypto market really? Is it really as shaky as many people claim, or is there more reliability to it than we think?
Cryptos Can Get Pushed by Popular People
We have seen that cryptocurrencies can get pushed by getting support from popular people. Bitcoin and even the small Dogecoin, which originally started as a frisky experiment, have been soaring as people with high influence in pop culture promoted digital currencies.
Last January for instance Bitcoin hit a new high above 47000 US Dollar which was a rise of almost 45 percent compared to just weeks before. Also, smaller digital currencies like Terra and Solana rose equally quickly in value at the same time. The playful experiment Dogecoin which originated from a joke soared almost 1000 percent over one week and set new records on the market.
The reason for this surprising development was partly an announcement of one of the world’s richest people, Elon Musk. His company Tesla, which is known for its progressive and innovative approach stated it had bought 1.5 billion US-Dollars worth of Bitcoin and was going to accept Bitcoin as a payment method for its products. Other celebrities also started to show their support for Dogecoin, which has a dog on the front of the digital coin.
World-famous rapper Snoop Dogg responded to Musk’s tweet with a picture of himself as Snoop Dogg ending up having viral support on the internet. At the same time, PayPal has joined the race by allowing users to hold and trade cryptocurrencies. These were particular reasons that resulted in the skyrocketing rise of cryptocurrencies within an extremely short amount of time.
Many people who have been developing or at least supporting cryptocurrencies from the beginning found themselves being suddenly in the focus of all media despite being mocked for their innovations before. Just months after people were making fun of the risky and unfounded concepts of the new digital currencies, the world’s richest man was openly talking about it on Twitter.
This shows how quickly the interest in a specific invention can be shifted and get in the focus, followed by an immense rise of the currency itself. But this kind of development driven by forces from the outside does not only work in one direction.
Public Statements Can Diminish the Currencies as Well
Of course, many investors were very happy to see Bitcoin rising dramatically after Tesla, etc. drew support to the new digital currencies. The same forces that build up an empire may very well be able to destroy it too.
Just about three months later Tesla surprisingly suspended customers’ use of bitcoin to purchase their products. The statement made by Elon Musk on Twitter kicked off a strong decrease in the value of Bitcoin almost immediately. The world’s biggest cryptocurrency fell almost 17 percent to its lowest point since March of this year. Even though Asian trading helped the coin to recover slightly, it still recorded huge damage.
The reason for this sudden change of direction was the lack of sustainability of the cryptocurrency due to Musk. He further stated that Tesla does not intend to sell its share of the coins but rather hold until the cryptocurrency has found a more sustainable way of mining. Digital currencies like Bitcoin are created in a process referred to as ‘mining’ which is a highly energy-intensive process. High-powered computers have to compete with other machines to solve complex mathematical puzzles.
These computers often rely on electricity which is still generated by unsustainable plants like fossil fuels. In particular, the generation of energy through coal has extremely high emissions and is more or less the opposite of what the futuristic and progressive ideas of Tesla and the young crypto generation stand for. An argument which is originating from the company’s philosophy and is obviously a reason enough for someone like Elon Musk to withdraw support and trigger a fall of the entire currency.
Those stories show that cryptocurrencies like Bitcoin still are indeed very volatile and dependent on factors from the outside. The abrupt rise and fall of the currency show that it keeps on being a quite speculative subject.
Nevertheless, the more support the currencies get from companies, platforms and governments, the more stable they will be and eventually find a way to establish a sustainable and strong position on the market that cannot be influenced by millionaires that easily anymore.
Furthermore, the Turkish Lira is one example of a fiat currency that is sensitive to government statements as well. Even if the developments of those fiat currencies are not that dramatic, it exemplifies the general risk of currencies falling or rising to some extent no matter how established they are.