Amid several speculations regarding the Cryptocurrencies and Official Digital Currency Bill, 2021, it is almost certain that this bill will not provide a blanket ban on Cryptocurrency trading, but will regulate it. Crypto stakeholders called for regulation to curb corruption and the bill is likely to be amended. Earlier some reports said that the government is going to ban private cryptocurrencies. One of the biggest factors responsible for the government’s policy shift is that Indians have already invested billions of dollars into Cryptocurrencies.
If you track the Crypto market, then you have seen that even speculation on banning private cryptocurrencies had led to a decline in the rest of the crypto including bitcoin. In this context, today we will see what are the reasons, due to which the prices of cryptocurrencies fluctuate.
Utility of that token
You need to know how much any cryptocurrency is used or whether transactions are allowed in any country. Similarly, how many global companies are ready to take payment in it. The more crypto is used, the higher is the expectation that the rate of that crypto will increase. When people transact in a coin and spend it, its price will increase.
Coins in circulation
You should know that the mining of any cryptocurrency is limited. That is, how many coins will remain in circulation, it is decided in advance. As it was decided at the time of the development of bitcoin that only 21 million coins will be generated. If more people buy and hold it, then its paucity will increase, which will increase its price.
Burning of coins
A burning mechanism is used for some coins. To increase the value of a particular coin, some of the coins that are in supply are burnt or sent to a locker whose key is not known. This reduces the availability of the coin, which increases the price of that token.
Whale accounts
Whale accounts play the most significant role in moving crypto prices. These are accounts that hold a large proportion of the coins in circulation in crypto. That is, they have a large holding of a particular coin. If they sell then the price of that crypto goes down. Whale accounts influence the market.
How Indian market boomed?
The Supreme Court in 2020 made it clear that Cryptocurrencies are not illegal in India. Now, talks between industry stakeholders and the Centre are going on to bring in a rule that will check corrupt practices in 2021. According to the Blockchain and Crypto Assets Council, Indians have invested more than Rs 6 lakh crore in crypto assets. Private digital currencies have gained immense popularity over the past decade. However, regulators and governments are skeptical about these currencies and are apprehensive about the associated risks.
Read more: Road Ahead For Booming Cryptocurrency Market In India