BITCOIN TRENDING

The price of Bitcoin (BTC), the world's most renowned cryptocurrency, has been shattering records over the past month, climbing to an extraordinary peak of $71,451. This trend has inevitably captured the entire financial market's interest and attention, marking a significant departure from traditional financial instruments. The meteoric rise of this 'digital currency,' which just 13 years ago was valued at less than a cent, heralds a new chapter in the financial sector.

Advocates of Bitcoin herald the dawn of a new financial era, one that is decentralized and liberated from the oversight of governments and banks. They envision it as the currency of the future, with the potential to effect positive global change.

Conversely, skeptics remain cautious. They label Bitcoin a speculative 'bubble' on the brink of bursting, cautioning against its volatility and the risks associated with its use for illicit activities.

Digital Money

Presently, the world hosts over 10,000 different cryptocurrencies. As reported by CoinMarketCap, the total market capitalization of cryptocurrencies globally reached $1.98 trillion as of February 26. Within this landscape, Bitcoin maintains its dominance, representing over half of the market with a valuation of $1 trillion.

So, what exactly is this enigmatic cryptocurrency? At its core, it is a financial asset not subject to issuance by any Central Bank or monetary authority. Cryptocurrencies, Bitcoin included, are underpinned by blockchain technology—a system for encrypting and storing data across an extensive network of computers. The blockchain serves as a comprehensive ledger, detailing every transaction, akin to a vast book recording all cryptocurrency activities. Each Bitcoin holder possesses a unique yet identical copy of this ledger.

Cryptocurrencies can be created by a diverse array of entities, including companies, organizations, and even individuals. This digital currency adheres to stringent transactional rules that are inviolable.

Bitcoins are minted by a collective of miners, ranging from large publicly-traded companies to individuals mining from their homes. In layman's terms, a miner is akin to a digital prospector, ensuring the integrity of the transactional ledger, preventing duplicates, and verifying that all transfers are duly recorded.

While Bitcoin can be utilized for purchasing goods and services, as well as for investment purposes, its function as a payment method remains somewhat restricted. Nonetheless, Bitcoin gift cards are available at select retailers, and Bitcoin debit cards—such as the BitPay Card, Wirex Card, and Crypto.com Card—are also in circulation. Platforms like LocalBitcoins, Paxful, and Bisq enable direct transactions for goods and services between users. Moreover, Bitcoin can be used to procure travel accommodations and plane tickets through services like CheapAir, Travala, and Expedia, as well as for purchasing games and gaming accessories (Steam, Kinguin, Gamestop), and VPN services (ExpressVPN, NordVPN, Surfshark).

Bitcoin exchanges also facilitate the purchase of goods and services. Notable exchanges include Binance, Huobi, and Kraken, particularly those offering trading pairs with Bitcoin.

A notable aspect of Bitcoin, in contrast to traditional currencies which have no upper limit, is that there can never be more than 21 million Bitcoins. The majority of these have already been mined and are currently in circulation. It is estimated that approximately 30% of all Bitcoins are irretrievably lost, as some wallet owners have forgotten their access credentials.

Price surge before fall?

The valuation of cryptocurrencies, including Bitcoin (BTC), is influenced by a myriad of factors, with supply and demand being paramount. These forces shape the price of all assets, and Bitcoin is no exception.

A critical concept in Bitcoin market analysis is 'halving,' which markedly impacts its price. In any monetary system, mechanisms exist to prevent currency devaluation. For Bitcoin, coin creation is tied to solving intricate problems on the BTC blockchain by users' hardware. When a miner successfully solves these problems, a new block joins the chain. Miners with superior hardware solve problems more swiftly, garnering rewards more often. Without changes to mining parameters since Bitcoin's inception, all coins would have been mined, diminishing their value. Halving, which occurs every 210,000 blocks when the mining reward halves, safeguards Bitcoin's value. This event transpires roughly every four years, with the last halving in May 2020 and the next anticipated in April 2024.

Cryptocurrency market specialist Elnur Guliyev observes that historically, BTC's price begins ascending months before a halving, culminating in new peaks. "The likelihood of an early interest rate cut by the US Federal Reserve also contributes," he suggests.

The Fear&Greed Index, currently at 79 points, indicates investors' buying inclination. Guliyev notes, "When the index surpasses 90 points, major investors typically commence selling."

The price surge around halving is predominantly speculative. With knowledge of the halving schedule, investors can identify optimal buying moments, acquiring coins to sell at the rate's speculative zenith. Historical trends suggest substantial gains from investing in Bitcoin months before a halving.

In total, 32 halvings are programmed into the network. Once 21 million BTC are mined, production ceases, an event projected for around 2140. Thereafter, only existing Bitcoins will circulate.

Market analysts highlight that Bitcoin's recent price growth coincides with consistent purchases by large investors, evidenced by the rising number of wallets holding substantial BTC amounts, and institutional buyers of spot Bitcoin ETFs.

An Exchange-Traded Fund (ETF) is an investment fund traded on stock exchanges, akin to stocks. It holds various assets and employs an arbitrage mechanism to align its trading value with its net asset value. A Bitcoin ETF specifically tracks Bitcoin's value, enabling investment without direct cryptocurrency ownership. As ETFs integrate into the conventional financial system, Bitcoin ETFs attract broader investor demographics. Consequently, heightened Bitcoin ETF demand spurs increased Bitcoin acquisitions as fund collateral, bolstering its value.

To buy or not to buy?

The factors driving Bitcoin's price surge may be understood, yet market participants are more focused on what lies ahead. While experts hesitate to predict the long-term future, they remain confident that Bitcoin will maintain its momentum.

Despite this, numerous analysts still regard cryptocurrency as a speculative bubble unlikely to gain acceptance in the conventional financial realm. For instance, Ulrich Bindseil, Director General of the European Central Bank's Market Infrastructure and Payments Department, and Jürgen Schaaf, an advisor in the same department, have declared Bitcoin unsuitable as a payment method or investment.

These assertions followed the U.S. Securities and Exchange Commission's January approval of the first ETFs investing directly in cryptocurrencies.

In El Salvador, where Bitcoin has been adopted as legal tender and citizens received $30 in Bitcoin, its use as currency has not been widespread. According to Bindseil and Schaaf, Bitcoin transactions are slow, cumbersome, costly, and, apart from illicit activities on the darknet, virtually non-existent.

Central banks and traditional financial institutions have long maintained a skeptical stance towards cryptocurrencies, a sentiment echoed by the Central Bank of Azerbaijan. While not officially recognizing cryptocurrencies as a form of payment, the bank has urged caution, citing associated risks.

Cryptocurrencies are neither legalized nor prohibited in Azerbaijan, meaning their possession and use are not illegal but also not state-regulated. Recent studies indicate that 3.4% of Azerbaijan's population owns cryptocurrency, with Bitcoin being the most prevalent. Additionally, purchasing cryptocurrency from abroad is subject to an 18% VAT, and a 10% withholding tax applies when residents transfer funds to non-resident cryptocurrency wallets. Furthermore, cryptocurrency transaction profits are taxable for legal entities and individuals.

The absence of explicit cryptocurrency legislation poses challenges for taxpayers, particularly regarding income declaration and tax payments. Cryptocurrency volatility complicates the accurate valuation of assets, potentially leading to declaration errors.

Guliyev notes that while there is interest in cryptocurrency within Azerbaijan, the creation of suitable social, economic, and legal frameworks is essential for its adoption: "Educating the populace and enacting relevant laws are prerequisites. Only then can cryptocurrencies become viable payment options in the real sector," he asserts. Guliyev believes that alternative payment methods would introduce a new payment culture and technological advancements, marking a significant shift towards economic transparency. "The future of the digital currency sector in our country hinges on legal recognition and technical integration of payment methods among economic entities," he concludes.

In essence, regardless of traditional financiers' reluctance to embrace cryptocurrencies, these digital assets have become deeply ingrained in people's lives, offering new avenues for financial gain. The consistent rise in Bitcoin prices signifies the increasing influence of technology in supplanting established norms.