The Growth of bitcoin and other cryptos as well as other assets is due to specific factors. However, O. Castellano Explains Why Bitcoin can crash.

Bitcoin reached new all-time highs across several currencies, with over 40% growth in the past month alone when measured in dollars. The cryptocurrency’s 2021 intraday high of $69,000 could be seen once again, soon.

The Reason Behind The Current Growth 

The growth is being fueled by the approval of BTC spot exchange-traded funds in the US, and expected changes to the way bitcoins are created and “mined” that will take place at the end of April.

According to data from The Block, about $70 Billion has been invested in spot bitcoin exchange-traded funds since they became available in January. The rising demand from buyers anticipating the next halving is why crypto bulls are predicting that bitcoin prices will soon exceed $100,000.

However, a closer look at this bullish target reveals some skepticism. JPMorgan estimates that the current cost of production, which is mostly the electricity required for the computers that perform mining calculations, is about $27,000. 

This serves as a price floor for Bitcoin. Immediately after the halving, this cost will temporarily increase to around $50,000. The current market euphoria is pulling the prices of not only cryptos but all the assets like stocks and commodities.

Bitcoin is Bound for Deflationary Bias

According to one of the popular articles by O. Castellano, Bitcoin’s creation has a fundamental flaw. The supply of Bitcoins is artificially capped at 21 Million, a design lacking economic sense. An economy requires as much money as transactions and activities that occur within it.

Thus, if many people start paying over the Bitcoin network, the value of Bitcoins will need to rise or at least remain at high levels to accommodate such demand. If the number of Bitcoin transactions continues to increase, but its currency’s amount ceases to do so because it has a ceiling, then it will suffer from deflationary bias. 

This means that each Bitcoin will be revalued too much, and the prices of goods nominated in that currency will fall, which is not positive for economic activity. Because the limit of bitcoins will limit its circulations as many people will stop liquidating it believing that it will only go up. This will cause a liquidity crunch and in the longer run the exchange market will be left to dry.

All that money needs to do is provide a stable index of value for any and all goods available on the market. Fiat currencies such as the US dollar are excellent at this, and they also serve as legal tender backed by central banks and treasuries.

Summary

Investment in spot exchange-traded funds and expected changes to Bitcoin mining at the end of April are driving its growth. Crypto bulls predict that Bitcoin prices will exceed $100,000 due to rising demand from buyers anticipating the next halving. However, Bitcoin’s artificial cap of 21 Million coins has been criticized for lacking economic sense.

Disclaimer

The views and opinions stated by the author, or any people named in this article, are for informational purposes only. They do not establish financial, investment, or other advice. Investing in or trading in stocks, cryptos or any other related indexes comes with a risk of financial loss.

Nancy J. Allen

Nancy J. Allen is a crypto enthusiast, with a major in macroeconomics and minor in business statistics. She believes that cryptocurrencies inspire people to be their own banks, and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning. She frequently researches, and posts content on the top altcoins, their theoretical working principles and technical price predictions.