Microeconomics of Bitcoin: Why Do Investors Choose Cryptocurrency？

Bitcoin ranks as among the best performing assets in all of history.

With so much capital behind the top ranked cryptocurrency, it is clear investors continue to pile into the coin that has provided past buyers with unprecedented ROI.

But why exactly do investors and ordinary people buy Bitcoin beyond the potential returns？ What are the advantages it offers beyond profits that have so many ready to take the risk and buy Bitcoin？

Why does it often command a cult-like following from its investor base？ Also, how exactly is Bitcoin so secure, to the point where so many trust it isn‘t a Ponzi scheme, won’t collapse to zero, or suddenly be shut down by the government？ Lets examine.

What Gives Bitcoin Value？

Bitcoin is among the best performing assets in all of history. It is currently hailed as the next big thing, pitched as everything from the eventual replacement to the dollar, to a hedge against inflation, and an insurance policy against the unknown. Others claim it is like owning a piece of the internet during the early dot com days.

But what makes it so important and valuable？ The monetary and economic phenomenon that is Bitcoin is only possible through the blockchain technology the network is built on. Blockchain technology is essentially a fully transparent, immutable ledger distributed across a network of collective nodes, all in sync and consensus.

It allows anyone to interact with the Bitcoin blockchain to transfer value expressed in BTC from one wallet to another, from anywhere in the world, and all without a third-party intermediary like banks, payment processors, or credit card services. Because there are no third party intermediaries and the protocol itself validates data, transfers of BTC cannot be blocked, canceled, or reversed.

Not even the government has the ability to put a stop to the Bitcoin network. It also means the governments cannot debase the hard-capped supply of 21 million BTC. Bitcoin being decentralized prevents it being used as a lever to apply pressure to other states or disconnect them from the network.

Blockchain is all inclusive and Bitcoin is the most impartial referee in the global economic landscape. It is the fact that Bitcoin levels the playing field in finance and opens up the global economy to all that the world is now changed forever.

Why Do Users Store Value in Bitcoin？

Participation in the Bitcoin network, the proven security and resilience of the blockchain, and other factors are behind why each BTC trades at such a high cost today per coin. Bitcoin is not like stocks where there is a company, shareholders, and revenue reports to consider. It also doesnt have a physical footprint like gold or commodities. Bitcoin is a new kind of asset class.

Bitcoin can be thought of as a bridge between a massive community of cryptocurrency holders. This network decided the value of Bitcoin based on consensus, and through ongoing fluctuations in supply and demand.

If this network believes each BTC should be worth $40,000 per coin, then thats the price it will trade. When and if conditions change that also change the perception of value in investors, then each BTC could be worth $60,000 or higher in a flash.

Much of the benefit that Bitcoin provides, is that although economic conditions may change, the Bitcoin network doesnt. 1 BTC will always remain 1 BTC, but the value of each BTC changes. Investors choose to store value in Bitcoin over other assets for many reasons, but among the biggest factors is trust.

The Bitcoin core code makes the blockchain network trustless. Users know that when they send BTC it will arrive to the recipient and no third party can stand in the way. They can verify that funds have arrived via transparent public blockchain data.

Where Does BTC Value Come From？

In the fiat currency monetary system of today, the issuer and guarantor of the security of its value is a national government or governments. The value of fiat money is based entirely on the trust in these authorities.

As history has shown, people cannot be trusted, and greed has led to every monetary system being debased down to disastrous proportions. Economic collapse tycially follows.

Bitcoin holders can rest assured that the hard-capped 21 million BTC supply can never be increased, altered, nor can BTC be issued at a faster rate. In fact, the rate in which BTC are released is always decreasing in roughly four year intervals during what is called a halving event. Each halving cuts the supply of BTC released to miners by 50% until all 21 million BTC have been mined.

For example, $50,000 in USD today will never again have the same buying power again due to record high runaway inflation rates. 1 BTC will always remain 1 BTC. $50,000 in BTC, due to Bitcoins deflationary economic model, has a high probability of being valued at a lot more in the future.

Only ten years ago, each BTC was worth $10. In ten years, the buying power of each BTC has grown by more than 500,000% to more than $50,000 per coin. During the same ten year timeframe, at only a 2% inflation rate $50,000 loses buying power by $1,000 a year. Inflation rates today are higher than 7% and rapidly climbing. Buying power is at risk, which is why Bitcoin will become much more valuable in the future.

Get The Most Value Out of Bitcoin With PrimeXBT

In summary, the value of Bitcoin comes from its security, popularity, and the trust its users have in the invulnerable and impartial financial technology, not from politicians and the banking system like traditional fiat money.

Despite all the positive history behind Bitcoin and strong potential for future investment, there is no denying that today Bitcoin remains highly volatile. Bitcoins notorious volatility is both a blessing and a curse.

For investors looking for the long haul, the ride feels a lot like a rollercoaster at times. Depending on when an investor buys into Bitcoin, the asset could lose value versus gaining it.

Margin trading Bitcoin as a speculative tool to extract all of the financial opportunity out of its incredible growth phases and explosive corrections can be highly profitable. Trading on leverage also means that a $50,000 position in Bitcoin only requires as little as $250. By putting less capital on the line, there is less risk exposure to Bitcoin volatility, while still allowing for the chance of reward.

Many margin trading platforms like the award-winning PrimeXBT also provide tools that can help to limit risk by using stop losses, and maximize profitability by trading both directions of the market.

PrimeXBT provides one-stop-shop access to more than 100 trading instruments, including Bitcoin, Ethereum, gold, oil, the S&P 500, and so many more. If you are convinced by the microeconomics of Bitcoin, but arent looking to take on all the risk, consider learning more about margin trading at PrimeXBT today.