Why do many virtual currencies not have a higher valuation than Bitcoin?

08/13/2023 07:45 • Blockchain Buzz • 96 views

Why do many virtual currencies not have a higher valuation than Bitcoin? Editor’s note: This article is from BlockBeats (ID: blockbeats) and is authorized to be reproduced by Odaily Star Daily.

The market value of Bitcoin reached its peak in 2017 and was subsequently sold off by the market. It has now fallen to a low point, but this situation is changing as the market gradually recovers. Why do many virtual currencies not have a higher valuation than Bitcoin? This is because Bitcoin’s price is more volatile than ever before, and it cannot be compared to gold or fiat currency.

However, if crypto assets and Bitcoin have the same investment value, then they are the same concept – mediums of exchange for different investment methods, and the trading volumes between these currencies are interrelated. This has advantages and disadvantages for investors, as they can choose products that suit their risk preferences. The same goes for investors, so there will often be more arbitrage opportunities when Bitcoin rises or less profit when prices skyrocket.

Therefore, the price of Bitcoin has fallen by about 10% from its all-time high, but its total market value has increased more than tenfold in the last few months of 2018.

However, after experiencing a bear market for over two years, Bitcoin has maintained its upward trend and continuously reached new highs. Although Bitcoin has been soaring in the past few months, there have been recent issues, such as Bitcoin network congestion causing high fees, and many people believe that its price will significantly decline.

Due to limited market share and poor liquidity, as well as imperfect government regulations in various countries, Bitcoin is difficult to attract mainstream financial institutions to participate. On the other hand, Bitcoin is still a highly speculative form of currency, even though it is not an effective monetary instrument, it still has the potential to become a new alternative investment.

Bitcoin’s attributes as a digital asset make it lack the same practical functions as other commodities. For example, Bitcoin can be used for transactions in various occasions, just like gold. But to understand this, it is necessary to understand that “you cannot buy a bunch of precious metals with fiat currency, your fiat currency should be kept in the exchange”. In fact, this process is not complicated, it involves only two things:

First, how to evaluate the supply and demand relationship of Bitcoin; the second factor may be whether there will be higher inflation rates in the next few weeks; the third factor may change, whether Bitcoin can continue to maintain stability and elasticity similar to the stock market, and so on.

Of course, Bitcoin has many advantages. First, it has a strong fundamental position, but at the same time, due to its relatively weak fundamentals and scarcity, its potential supply will also decrease. The main reason why Bitcoin is so popular is its decentralized nature. Bitcoin is not only a leader in the crypto field but also a “head” in the entire ecosystem. Ethereum is currently one of the largest applications, with numerous developers and technical talents, including former Coinbase CTO Balaji Srinivasan, FTX founder Sam Bankman-Fried,

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Why do many virtual currencies not have a higher valuation than Bitcoin?

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