Cryptocurrency, The game changer — 1: Rise and Fall of Cryptocurrency
If you are here, you must have already heard about the infamous term “cryptocurrency”. But I’m skeptical about your understanding about this term. So I’m going to introduce this term yet again. Cryptocurrency is a token or an asset which can be used (or at least intended to be used) for transactions. It acts as a medium of exchange. In short, it can be a replacement for your good old money. But what is important to understand that it is “virtual” and completely intangible.
This story is an attempt to make people understand how inappropriately we have been using cryptocurrencies. If you are here to get an insight into whether to invest in cryptocurrency or not, please click the back button. Let’s dive in.
In today’s world, where speculation has become a part of daily life, cryptocurrencies have become an entity which people are unsure about. Let’s, rewind and think from where did this all start? In the first quarter of 2010, Satoshi Nakamoto (let’s assume he exists) named man had deployed the first ever blockchain. Hold on! Do not get tensed about what “blockchain” is, because that is not what we will be discussing about. At the time of deployment, this very first cryptocurrency was introduced to the world by the name “Bitcoin”. On 19th July 2010, the price of this token was $0.06 ( ₹2.35).
For a while, shift your line of thought to any fiat currency. For instance Dollar. What can be done with Dollar? Either you can use Dollar to buy lands, commodities, assets, services etc or you can use the Dollar for foreign exchange trading. For those who are unaware of what foreign exchange trading is, this kind of trading allows you to buy and sell currencies. For instance, if you have ₹70 and $1= ₹70, then you can buy 1 Dollar by paying ₹70. Later if the price of the dollar increases to ₹74, you can sell $1 Dollar which you currently have and you will make a profit of ₹4. The crux of this explanation is, currency can be used for the purchase of goods or for foreign trade. Implicitly, in all nations, the majority of currency is used for purchase and not for Foreign Trade. Do you remember when was the last time you tried Foreign exchange trading? Exactly my point. Usually, banks are the entities heavily involved in the Foreign exchange trades. A common person will indulge in foreign exchange mostly if he/she is traveling abroad.
The Bitcoin was introduced so that people use it like any other currency. But instead of using for purchase, people started to trade in bitcoin, buy-sell, buy-sell, and buy-sell. The bitcoin market, which was showing progress year by year took a sudden rise, both in volume and price.
As the number of investors started to increase the overall volume (amount of tokens traded in a period of time) of this token started to increase. In about 7 years (December 2017)the price of this token had become approximately $19,300. Wait. What???? That’s like 32,000,000% increase. But who were these investors? Most of the people who had been investing were neophytes. A neophyte investor is an investor who does not know what exactly he/she is investing in. They do not understand what are the factors involved in the price fluctuation of the token. The sole reason investment is being made is because the price of the token is increasing. Such investors tend to withdraw as soon as the price rises. Majority of bulls were neophytes in December 2017. They withdrew their support and the price of token started to fall. As on 10th October, the price of bitcoin is 1/3rd of its price in December 2017. The reason people were more inclined towards foreign exchange like trading with Bitcoin and less towards using it for purchase is Government influence.
Governments of multiple powerful nations did no welcome crypto trading. But did anyone think why governments are reluctant to introduce cryptos? Stay tuned for an upcoming article on why nations like the USA take an equivocal stand and why China has banned it.