Cryptocurrencies are like Giffen Goods, Here’s Why

Analysts and market participants aren’t yet able to create the price prediction formula for cryptocurrencies; the market forces are divided on how these new assets will perform– some are calling for steady price growth, and others are seeing the price to fall to zero. Meanwhile, the idea of correlating cryptocurrencies with Giffen goods seems to be undoubtedly true.

Why Are Cryptocurrencies like Giffen Goods?

Giffen goods are products that people consume more when prices are higher, contrary to the demand and supply principle. Cryptocurrencies drive higher demand and interest when its price increases while the demand for digital currencies declines with the decay in prices.

The demand for cryptocurrencies increased substantially in the final two months of last year when its price was soaring at a robust pace. However, regulators interference and harsh comments from market forces pulled back Bitcoin (BTC) and other digital currencies from their all-time high; the decline in prices has also lowered trader’s interest towards cryptocurrencies.

Market Interest for Cryptocurrencies Declined

Google trends show that searches for bitcoin and other cryptocurrencies tanked by 80% to the lowest level in the last five months, while total confirm transactions are declining at a strong pace over the previous two months.

Traders lost their confidence in cryptocurrencies after regulators, and key market players strongly criticized them on various grounds, including the lack of underlying value, failure to work as a medium of exchange and its uses in illegal activities.

Followed by Facebook and Google, Twitter has also been planning to ban cryptocurrency related ads; they believe the unregulated cryptocurrency ads are harmful to consumers.

>>Bitcoin Price Watch – Returns to $8,500

Prices Regained Momentum on Mark Carney Statement

Bitcoin price regained momentum on Monday after hitting $7000 level on Sunday; the uptrend in price was supported by a statement from G20 Financial Stability Board chairman – who believe cryptocurrencies aren’t in a position to threaten the financial stability of the world. FBS members are likely to talk about digital currencies, but the chairman had ruled out the establishment of new regulatory policies for crypto markets during the summit.

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