Polachecks Holiday 2021 Magazine

WHY DOES THE PRICE FLUCTUATE SO MUCH? Most cryptocurrencies are decentralized, meaning there is no central authority that controls their value. While the United States Federal Reserve can increase or decrease the money supply or manipulate interest rates to change the value of a U.S. dollar, market forces are always the sole determinant of a crypto’s price. The market can be fickle, so seemingly isolated events can cause dramatic price swings. For example, Tesla CEO Elon Musk expressed interest in Bitcoin and other cryptocurrencies on his Twitter account in February of 2021, leading to a massive price spike that catapulted Bitcoin to nearly $50,000 per BTC. Several months later, Musk expressed concern over the environmental impacts of Bitcoin mining, causing a 20 percent loss of value in a 24-hour period. Other events that can cause a significant price change include world governments looking into regulation, scam artists being exposed, hard blockchain forks, and technological advances. THESE EVENTS SEEM RANDOM. HOW DO CRYPTO INVESTORS PREDICT THEM? Most crypto investors make their decisions based on broader data points, as opposed to the events that lead to sudden, dramatic price swings. Resources like CoinMarketCap make it easy to track how a given coin is performing, comparable to playing the stock market. Likewise, cryptocurrencies have a clearly

WILL CRYPTO REPLACE MORE TRADITIONAL CURRENCIES? When Satoshi Nakamoto (a pseudonym for an as-yet-unidentified person or persons) introduced Bitcoin in 2008, the ultimate goal was for it to become the standard method of purchasing goods and services. Some crypto advocates still see this as the goal and support changes to the technology that reduce processing fees and increase how many transactions can be handled per second. However, others see crypto as an investment vehicle capable of delivering outstanding profits. The changes that make crypto more feasible as an everyday currency decrease each token’s value, hurting investors. Consider the example above. Bitcoin is wildly impractical as an everyday currency if you have to use the equivalent of a $20,000 bill to buy a gallon of milk, but Ripple isn’t worth enough for investors to make much money. There is an ongoing debate within the crypto community about which approach is better. HOW DO I GET STARTED WITH CRYPTO? If you want to buy crypto, the first step is choosing which tokens you want. Resources such as CoinMarketCap, CoinReviews.io, and Blokt offer valuable information to help you make a decision, but remember that much of their content contains bias trying to sway you one way or the other.

Next, you have to choose an exchange to facilitate your transaction. CoinBase.io and Paypal are frequently recommended to beginners because they allow you to pay with your existing bank account and offer intuitive interfaces, but they also charge higher fees and offer a limited selection of tokens. As such, serious investors will probably need to graduate to more powerful exchanges such as Kraken or Gemini at some point. Finally, brace yourself for a wild ride. No other investment offers the possibility of rapid profits that crypto provides, but you can lose everything just as easily. Only invest what you can afford to lose, and don’t fret if you gain or lose 10% in a single day. PARTING THOUGHTS Hopefully, this article answered any questions you had about crypto tokens. The blockchain technology behind them is intriguing, but it remains to be seen if they will ever become stable enough to facilitate everyday trade.

defined scarcity that allows investors to make informed purchase decisions. F o r i n s t a n c e , Bitcoin’s circulating supply is capped at 21 million BTC, meaning that there will never be more than 21 million coins available. That’s a relatively low number considering the global population that may want Bitcoin, so whole tokens are regularly worth tens of thousands of dollars. In contrast, an altcoin

called Ripple has a planned circulating supply of 100,000,000,000 XRP, meaning that each XRP is worth less than a dollar. It’s basic supply and demand economics.

P O L A C H E C K ’ S J E W E L E R S M A G A Z I N E [ 51

Powered by