There has been concern about the state of the global financial system for some time now. Because of the current state of the economy, traders tend to avoid investing in risky assets such as cryptocurrencies. But the stability of Bitcoin (BTC) turned the whole situation around. Bitcoin and Ethereum had unparalleled price stability in 2023, surpassing the performance of tech stocks and gold.
Bitcoin and a number of other cryptocurrencies are increasing in value despite the rising rate of inflation worldwide. Truly, from the beginning of 2023, Bitcoin has increased by 108%. Does that imply, though, that Bitcoin is performing better than the state of the world market? Let’s investigate more closely. Deflationary and inflationary cryptocurrencies are the two types of cryptocurrencies.
The quantity of inflationary cryptocurrencies rises gradually over time. It occurs as a result of mining and staking activity. Their essential characteristics are the same as fiat currencies, which are printed by central banks. Deflationary cryptocurrencies, on the other hand, reduce the amount in circulation. It results from operations like burning or halving. Because of this tendency, their value gradually rises due to a decrease in supply.
One of the rare cryptocurrencies that fits under both categories is Bitcoin. Through mining, the amount in circulation is raised. However, a halving occurs every four years to reduce its availability.
Despite unfavourable market circumstances, Bitcoin has been performing well; yet, traders find it to be a confusing commodity due to its past experiences. The oldest cryptocurrency, Bitcoin, has barely been around for ten years, in contrast to traditional assets.
Making a prediction about the price of Bitcoin becomes difficult because of its unstable nature. Even Nevertheless, proponents of Bitcoin rest their case on the virtual currency’s restricted quantity. It suggests that because of its ability to hold value, Bitcoin can withstand typical market fluctuations.
But at their core, cryptocurrencies are extremely erratic. Even Bitcoin has experienced unheard-of drops, falling as much as 80% in a matter of months. A regulatory framework’s absence adds to the dangers associated with using Bitcoin and other cryptocurrencies.
These drops, nevertheless, are understandable given that cryptocurrencies are still in their infancy. These assets will always be volatile since the market still accepts them. Such sharp falls will soon become unusual as cryptocurrency starts to gain more recognition.
Therefore, it is impossible to contest Bitcoin’s position as a crypto safe haven given its present performance and the state of the market. Even with its volatility, the asset can beat conventional assets just by virtue of market sentiment.