ELi5:On What a Basis Do Crypto And Share Market Go Up And Down
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Crypto is driven by supply and demand of course but there are other component factors in each.
In supply, there is the available pool of crypto units. For BTC that will be limited to 21 million. Other cryptos have their own rules. Cryptos are “available” only insofar as people want to sell them, vs holding them in the belief they will rise in value.
On the demand side, there are factors such as utility: if I buy this thing, how can I use it? This touches on the adoption of crypto as a medium of exchange, which right now is very limited. There is security: are my holdings safe from loss and theft? There is stability: will my holdings suddenly lose value or will it be a reliable purchase? There is opportunity cost: do I have enough other currency to buy crypto?
Crypto is in an area that is between currency and investment without really being either. You’re not investing in the sense of lending money to an enterprise engaged in the pursuit of making something and sharing in the profits. And it’s not a currency because it has very little acceptance and is legal tender nowhere.
It’s just a thing that some people have decided is valuable to hold, will rise in value, and will become a viable currency when (if) regular money collapses.
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