The lure of Bitcoin, inflation and price volatility

What lies behind the attraction of bitcoin for some part of the population, while the larger masses don’t understand anything about cryptocurrencies? Behind the fog of long hash addresses and obscure terms like cryptography lies the simple idea of a “bit coin” that is cheap, and which also makes economic sense.

Inflation figures are usually in single digits and eat up a part of investment returns. So money converted to bitcoin forms an investment without that 5% inflation cut, for there can’t be more than 21 million of them, unlike paper money.

In Turkey, inflation figures are in double digits. That made bitcoin really attractive, and at a kebab store, customers would use it to pay up to 10% of their bills and save their paper money.

Stores like the kebab seller, hairdressers and small stores also adopted it to earn more sales and expand. All of that will come to a halt from May 1 as Turkey has banned the use of cryptocurrencies as legal tender. The issues cited for the ban were “risk” and irreparable damage.

The meteoric rise in BTC’s prices has made heads turn. Major organizations are or want to invest in it. Here are some recent ones:

MicroStrategy: An intelligence and consultancy firm, recently bought over $2 billion worth of bitcoin, which soon became over $5 billion in worth.

NBA Sacramento Kings team: Got an option to take salary in bitcoin.

Citibank: Considers it positively as a currency of global trade

VanEck Bitcoin ETF, an exchange-traded fund, is in the making and Fidelity, a large mutual fund, has reported working on creating one. The VanEck’s approval has been delayed by the SEC. There are some ETFs that carry the name bitcoin, but do not hold any crypto, investing rather in firms with blockchain-related activities. The SEC’s concern was recently highlighted in a report, where it’s stated that extreme price volatility and unregulated trading in foreign exchanges (around 75% of total value) are among the worries.

In India, it seems days are far when one will be able to pay the autorickshaw driver in bitcoins. These small retail and business spaces are extremely flexible in adopting new tech and products (such as UPI and mobile wallets), and crypto technology won’t be an issue, but just one more addition. For now, all eyes are on the pending Bill which will decide the fate of crypto trading and what investors are currently holding.

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