In recent years, Bitcoin (BTC) and the cryptocurrency market have grown exponentially, with the sector accumulating a trillion-dollar market capitalization. This growth boosted the sector’s financial, technological and business ecosystem.
Because it is a growing market, many seek to venture into it with the aim of making good profits. However, it is necessary to understand its dynamics to avoid headaches.
Understand how the Bitcoin market works . Discover the functioning and characteristics of this expanding sector, to invest assertively.
How does the Bitcoin and cryptocurrency market work?
Bitcoin was born in 2009 and kicked off one of the greatest financial movements ever seen, which is now in the trillion-dollar level. In terms of price action and growth, the industry has basically been driven by that of Bitcoin; this entitled many early investors to wealth.
Essentially, all bitcoins in circulation arise through mining , which is a voluntary activity where it is necessary to direct computational power to obtain the chance to add a new block to the blockchain.
Some analysts point out that mining is what sets a minimum value for bitcoin, with the cost of the activity being the base price of the cryptocurrency.
With the natural growth of the cryptocurrency’s price, an entire ecosystem began to emerge to serve the user base. Some of the businesses that have emerged in the Bitcoin market include:
- Mining: Bitcoin mining companies have become increasingly competitive in recent years, with some even going public on stock exchanges. This sector has become a true industry, led by large institutional players;
- ASIC manufacturers: ASICs are computers created for specific activities, such as Bitcoin mining . Currently, much of Bitcoin mining is done with ASICs, as they are more efficient than conventional processors and video cards;
- Wallet manufacturers: there are several hardware wallets on the market, developed by specialized companies. This equipment provides a layer of protection to carry out self-custody safely;
- Development companies: there are several companies that develop products and services for their clients, such as mixers, Dapps and other solutions;
- Exchanges, funds and platforms : exchanges, fintechs and investment funds have the function of facilitating cryptocurrency trading for their customers. Currently, there are several platforms of this type around the world;
- Media and education portals: media, content and education portals are fundamental to feeding the market with information, updates and knowledge. Many of these companies also offer courses and consulting services.
What are the advantages and risks of the Bitcoin market?
Now that you understand how the Bitcoin market works, remember that, just like any other sector, there are risks and possible returns that a investor could analyze.
Some advantages of investing in bitcoin, check:
Sovereignty over currencies
Through bitcoin , it is possible to obtain sovereignty over its currencies through self-custody, which consists of generating and securely storing the private key that gives the holder the right to move the funds to another address. By doing this, the saver is sovereign over their bitcoin.
International liquidity
Bitcoin is an asset with liquidity and international acceptance, so it can be traded legally in practically all countries and currency pairs.
Proven shortage
The principal property of the store of value is digital scarcity. It differs from the digital in that in Bitcoins, one knows exactly how many there are in circulation and how many will exist over time. Moreover, a limit on issuance was set at 21 million bitcoins since its very creation.
Transparency and security
Through a transparent and auditable network, it is possible to store your resources in a secure and reliable network, a guarantee that is not observed in the legacy financial system.
However, not everything is perfect and the bitcoin market brings several risks, which investors must be aware of, such as:
Possibility of bugs
Bitcoin, like any other protocol, is susceptible to bugs and associated issues. This is not just theoretical, as a bug in 2010 was responsible for creating billions of bitcoins, something that breaks the rules of the network. However, the problem was resolved within a few hours and the network returned to normal.
Risk of self-custody
Bitcoin cold storage is the safest and most sovereign way to own the digital asset. However, to do this correctly, you need to have some technical knowledge about security procedures.
Volatility risk
At Bitcoin, there is no guarantee about future price action, which stays pretty volatile. An investor who is not thinking long-term could, therefore, watch the value of their coins melt away in a market correction.
What are the main categories of cryptocurrency companies or services?
Check out some types of cryptocurrency-based companies and services that are available in the Bitcoin market .
exchanges
Actually, the cryptocurrency exchanges are companies whose function has been to offer a platform for negotiations between buyers and sellers. It is through brokers that most of the negotiations take place, and it goes without saying that it is where the prices of the market are defined.
Investment Services
There are companies that are capable of providing returns under cryptocurrencies. However, it is necessary to be aware of these companies, as many unsustainable business models and even scams have appeared on the market in recent years.
Wallets
Cryptocurrency wallets have the basic function of creating addresses and generating transactions for the chosen digital asset. However, wallets may feature additional services and products, such as coin mixing services, or ways to purchase cryptocurrencies directly from the app.
There are also companies in the bitcoin market dedicated to creating hardware wallets, which are physical devices that allow cold (offline) storage of cryptocurrencies.
Blockchain Solutions
There are several solutions on the market that are registered directly on blockchain networks. There are currently several Decentralized Applications ( DApps ) on the bitcoin market that have multiple purposes.