Despite the recent bullish trend in cryptocurrency prices, China’s activity is limited compared to other countries. In 2021, total estimated realized cryptocurrency gains in China were $5.1 billion, an increase of only 194% year over year. Other countries, including the United States, the United Kingdom and Germany, reported higher gains during this period. It is likely that the crackdowns by the government are responsible for this lackluster growth in China. Nevertheless, the potential for further gains remains high.
The rise of cryptocurrencies is expected to be fueled by widespread usage of the technology. Despite the fact that cryptocurrency is not legal tender in any country, it is recognized by many to act as a medium of exchange. This allows individuals to buy and sell cryptocurrencies online. Some countries also treat crypto assets as property and charge capital gains tax on them. These factors are believed to have contributed to the dramatic growth in Bitcoin prices. Hence, it is important to understand the factors that drive the growth in cryptocurrency prices.
The biggest concern that has caused the price rise in cryptocurrencies is the unpredictability of market trends and regulatory framework. While cryptocurrencies are the “it” investment asset of the moment, their price growth may be short-lived. For example, the Chinese government is waging a full-fledged war against cryptos to promote their digital yuan and snatch away competition. As a result, this has spooked investors worldwide and driven down the prices of crypto assets.
The law of supply and demand is another reason why cryptocurrencies are so volatile. The law of supply and demand states that, when demand exceeds supply, manufacturers will increase production to meet the demand. This is how cryptocurrencies work. In short, if there is a low supply, the price will increase, while a high supply will decrease the price. However, in the case of cryptocurrencies, there are no restrictions on the maximum supply, which means the price will fluctuate over time.
The current volatility in cryptocurrency prices is largely driven by speculation. Bitcoin is nearing a psychological $10,000-per-bitcoin barrier, and is now worth $11,153 as of Wednesday’s market close. Media attention is driving this price growth, but it also has institutional investors entering the crypto game. A recent article in Bloomberg Money reports that institutional investors are putting their money into the cryptocurrency market, and Bitcoin is now worth $4,000-$40,000 per coin.
Similarly, the news about blockchain technology, crypto exchanges, and cryptos affects cryptocurrency prices. News about new technological breakthroughs and mass adoption of cryptocurrencies usually lead to higher prices, while uncertain situations can cause prices to plunge. Nevertheless, this does not mean that a cryptocurrency is worthless. It has made a meteoric rise over the past two years and its market cap is now greater than that of established businesses. The next big thing is the emergence of a new player in the crypto market.
As a cryptocurrency investor, you should consider the potential of tax benefits. By opening a cryptocurrency IRA, you can benefit from the cryptocurrency price growth while retaining the same tax benefits as a conventional retirement account. Furthermore, you can rollover any existing tax-advantaged retirement accounts into a crypto-based IRA. If you’re a veteran investor, this might be the best way to make a smart move.