In the first half of 2020, cryptocurrencies have topped the stock markets. Their market value has steadily increased beyond most other assets. This is extremely impressive considering the downturn in the market caused by the global pandemic of the coronavirus. This resulted in so much uncertainty on many other assets listed on the market. While cryptocurrencies did initially go down in value, they did not fall nearly as much and recovered better than others.
Cryptocurrencies and the Global Pandemic
Bitcoin, the most well-known cryptocurrency, provides investors significant returns. In comparison, one of the safest assets, gold, declined in value for much of 2020. This was surprising to some considering gold has historically been considered very stable. Most currencies were initially based on the value of gold, so it surprises some investors to know that a new form of currency is taking charge. This is incredibly hard for some to grasp, considering cryptocurrencies are not backed by any physical asset. Yet, cryptocurrencies are seemingly the way of the future, and their escalating values back up that claim. To know more about bitcoin trading you can visit australiantimes.co.uk
The global pandemic had devastating effects on many listings on the stock markets. It is essential to recognize this because 2020 is not a typical year by any means. Take, for example, oil, another top performer, was down over 66% at one point. With everyone stuck at home and being told to limit their outings to essential trips only, the demand for oil went for a nosedive.
Before that, the consumption of oil was extremely high, so the stock was always valuable. Many stocks did not perform as predicted at the beginning of 2020, but then again, very few people expected a virus could shut down the world economy.
Stock markets did begin to recover after the first two months of the pandemic. Most cryptocurrencies followed the fluctuations of the market, first dipping then recovering. The initial sell-off of cryptocurrencies was likely because people wanted to have access to cash. The uncertainty of where the virus was headed made people believe that they needed cash now more than ever. It is somewhat ironic that most businesses have preferred to move to non-contact forms of payment because of the virus. While in most cases, this means Interact or credit cards, it does lay the groundwork for more businesses to accept cryptocurrencies as a form of payment.
At this time, the story around cryptocurrencies on the market is no longer about the coronavirus but about the Bitcoin halving. Every 210,000 blocks, Bitcoin undergoes a halving. This means that when Bitcoins are mined, their transaction reward is cut in half. Miners also receive half the number of coins they used to receive for every mining transaction. It also halves the inflation rate of the Bitcoin and how often new Bitcoins become available.
Halving is a powerful story on the markets because it historically means the value of Bitcoin increases dramatically. Since the amount of Bitcoin in circulation is cut in half, there is less supply. When there is less supply, the demand goes up, making the stock more valuable, which is one reason that Bitcoin is performing so well in 2020. It also creates more value for other cryptos. Since not everyone can afford or get into the Bitcoin market, investors look for the next prominent cryptocurrency.
Looking at 2020, cryptocurrencies have indeed performed better than most other stocks on the market. This is due to the combination of halving and a belief that cryptocurrencies are the future.
Unlike many other stocks, cryptos came out unscathed when the stock market took dips due to COVID-19, which further supports the argument of their increasing value.
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