Bitcoin, Blockchain, Cryptocurrency, Ethereum

Ethereum explodes: What is behind the crypto-boom?

The followers and investors of many crypto currencies are at present once again in high spirits. Because the courses screw themselves from day to day on new monthly highs. All in front is at present the probably most well-known Kryptowährung after the Bitcoin: Ethereum.

Now many investors place themselves the question, whereby this Rallye is justified. And, still, much more importantly, is the current price increase only at the beginning of a long-term upward trend with the goal all-time high?

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From gold to crypto currencies

Of course, there are many reasons for or against an outbreak of digital currencies like Bitcoin, Ethereum and Co. Every analyst probably has his own opinion here. For me, the current rise is only at the beginning of a longer bull market, which will probably take place analogous to the rise in the price of gold.

Because you should keep in mind that crypto currencies can perform different functions, for example payment transactions. In principle payments rise with the help of crypto currencies, however I have doubts about the fact that this fact provides at present for rising courses.

Rather monetary measures of many central banks ensure that cryptocurrencies gain in value. Because these institutions are taking measures to keep the current economic system running. This works, among other things, with a strong expansion of the money supply in euros, US dollars, or Japanese yen. The advantage for the central banks is that there is no upper limit. In principle, therefore, as much money can be created from “nothing” as one wants.

However, this ensures that the underlying currencies lose in value from year to year. This loss of purchasing power is called inflation. However, there are material assets, which are subject to a quantitative upper limit such as gold or crypto currencies. This means that there is only a limited number of Bitcoins and thus no inflation can occur.

Therefore I assume that cryptocurrencies in their function as a store of value will be increasingly in demand in the future. This could even lead to a renewed “run” on digital currencies because rising prices ensure high attention and further procyclical purchases.

Risks of crypto currencies

Nevertheless, one should not write an analysis about crypto currencies without pointing out the high risk. Because while gold serves for thousands of years as storage of value, crypto currencies must prove only whether they can actually do that in an emergency.

In extreme cases like a hyperinflation the danger exists besides that that crypto currencies are forbidden, after which their prices could fall into the cellar. Do I consider this scenario likely? No, because otherwise I would not hold crypto currencies. However one should weigh all scenarios before an investment decision. Because history teaches us that even gold was partially prohibited in times of galloping inflation.

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About Marc

MSc. in Business Informatics with a focus on asymmetric cryptography and M2M communication. I have been working in Bitcoin and cryptocurrencies since 2015.
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