Bitcoin Exchange Rate Goes Up After the Election

Picture: by BTC Keychain on Flickr

When people are uncertain about the economy and lose faith in certain currency (especially when it's USD), the price of gold goes up. If you are not familiar with this reasoning, here is a quick brush-up. Currencies and commodities are traded in pairs against other currencies. When a price of one element in a pair goes up, a price of the other one goes down, and wise versa. When gold is bought in a particular currency, usually American dollars, it's price goes up, and the value of American dollar decreases. When people are not sure what is happening in the economy, and believe that the economic output of a country can decrease, they tend to purchase gold as one of the most secure assets. 

The fact that the American dollar is not backed by gold means that pretty much anything can happen to the currency. The Federal Reserve can print more money, or decrease the money supply if the American government finds it necessary, which helps to control inflation, economic growth and so on. It also means, however, that if some external factors happen to the economy, the value of currency can be highly volatile and can be difficult to control. To secure themselves from loosing money, people purchase gold to keep their savings safe, and when many people  are buying gold simultaneously, its price is increasing. 

A choice of secure assets had stayed pretty much unchanged for years: gold, silver, Japanese yen (the former one is deflating: gaining the value over the time instead of loosing it). However, the recent election added one more player: Bitcoin. After the presidential election, the price of the cryptocurrency increased as much as 4.6% against the American dollar. In the past year, along with the presidential campaigns, the Bitcoin's value has been growing steadily. If you look at the Bitcoin exchange rate history, you will see that it has been very volatile. In early 2013, the value of Bitcoin was just a bit over ten dollars. Then later on the same year, it skyrocketed to over 1,000 dollars. Then, due to a crash of one of the major Bitcoin exchange platforms, the value of the cryptocurrency collapsed, but yet still not to the ten dollars it was in the beginning of 2013. 

Many believe, that people relying on Bitcoin as on a save haven marks a certain milestone for cryptocurrencies. Society now has trust towards them, and the level of volatility of the established cryptocurrencies is not dangerously high. It makes people retire to it as to one of the safe assets in times of uncertainty. 

Another argument that suggests that cryptocurrencies, and Bitcoin in particular, are becoming more credible is the emergence of companies that sell gold directly for Bitcoin. Not for Bitcoin exchanged to dollar or an other currency, but directly. It means that there are trades being done in Bitcoin/Gold pairs, hence the values of the two become more interdependent. It is a huge step towards. Such interdependence is likely to lead to more stable Bitcoin rates that would make it similar to any other strong currency. 

Whether you support cryptocurrencies or not, they have emerged significantly in last seven years. Some governments are openly against the trend, as they lack control over monetary and fiscal policies in the area. But isn’t it what made Bitcoin big in the first place? Either way, the technologies such as Block Chain that stand behind cryptocurrencies  are most certainly the future and I highly recommend everyone to take a look into it.