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Tuesday, January 31, 2023

Bitcoin and Ethereum: What’s Happening?

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Bitcoin and Ethereum: What’s Happening?

Because it was the first cryptocurrency, bitcoin has a huge following. In addition to being a cryptocurrency, Ethereum also has a lot to do with smart contracts. Ethereum’s ease of use and the wide range of decentralized applications that are compatible with it are the main reasons why it is so well-liked.

Through its smart contracts, Ethereum was able to support the video game “Etherium.” The “Ethereum Foundation” and the “Wings of Genesis” proposed this notion. A concept of a legally binding written contract is known as a smart contract. An means that once this agreement has been reached, there can be no going back on it. In the Ethereum scenario, this would imply that the player would receive money if they triumphed in a combat. They would not receive payment if they lost the battle.

The popularity of Bitcoin and Ethereum is due to a variety of factors. Being the first cryptocurrency, being incorporated into “Etherium,” being simple to use, and utilizing smart contracts. People are drawn to Bitcoin and Ethereum as a kind of cash for all of these reasons.

The idea that Bitcoin and other cryptocurrencies can serve as an inflation hedge  is a popular idea. It has become one of the most well-known claims made by proponents of cryptocurrencies over the years. We may examine the qualitative data we now have to determine whether this has consistently been the case throughout time. The graph above shows how Bitcoin (BTC) and Ethereum (ETH) have changed in connection to inflation and interest rates in the United States since 2017.

The top two cryptocurrencies have had an inverse relationship during this time, according to CryptoCompare’s data. In the context of a current worsening macroeconomic situation.

Bitcoin and Ethereum haven’t truly served as an inflation hedge

We do want to point out that Bitcoin has performed far better than the major fiat currencies against the US dollar before I go a little further into why the inflation hedge narrative does not hold true. This was made clear by the record-breaking exchange of Euro and Pound for Bitcoin.

The graph above makes it clear that Bitcoin and Ethereum have so far been unable to serve as a long-term hedge against inflation. What has transpired is an example of a long-standing financial concept in action: when interest rates rise to positive levels and are not zero, it indicates that due to the opportunity cost offered by positive interest rates, the present value of hazardous assets decreases. Bitcoin in particular has been used as a risk asset, if anything.

Recent data support that claim. In my earlier article, I talked about how Bitcoin’s inverse relationship with the US dollar and its direct relationship with the tech-heavy Nasdaq had reached extreme levels, all of which indicated that, at least in the short term, Bitcoin and cryptocurrencies have evolved more into risk assets than safe havens against risk.

As they develop and grow, digital assets are still a unique asset type. To validate that the narrative about short-term hazardous assets remains true—and that of inflation hedges, not so much—we still need to examine a longer temporal data frame.

The post Bitcoin and Ethereum: What’s Happening? appeared first on FinanceBrokerage.

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